Banking  report — another own goal

THERE is a case for reforming the country’s banking laws, Reserve Bank of Zimbabwe governor Gideon Gono told us last week.

That the call to reform the banking regulatory regime came concurrently

with a ruling by the same central bank dismissing an appeal by shareholders of closed banks is not only ironic but an admission by Gono that he has been presiding over defective banking laws.

Last week the RBZ determined that Trust and Royal banks’ shareholders had no rights over their assets sold to the Zimbabwe Allied Banking Group (ZABG), after a panel he had appointed to investigate the issue said the two banks could “not be traded into a sound financial position”.

ZABG is an RBZ creation from the wreckage of troubled banks.

The current banking laws allow the central bank to be the judge in a dispute in which it is a party. In the Trust and Royal banks case the central bank was not only a party to the dispute but was in the dock for impropriety in the disposal of assets belonging to the two banks.

It would be stretching honesty and integrity to breaking point to expect an accused — given a chance to leave the accused’s box and join the jury — to vote for a guilty verdict. This is how defective the law is. It allowed the accused to sit with the jury and pronounce the verdict as judge.

It is therefore shameful that such a legal sham is used to solve disputes in a sensitive sector such as banking. The adjudicatory authority vested in the RBZ subtracts aggrieved parties’ rights to a free and fair hearing by a disinterested body. These powers vested in the central bank are patently unconstitutional. Today, a ruling based on such unconstitutional powers stands. In fact, the ruling is so shocking that it appears to nullify a Supreme Court ruling last year that the sale and transfer of the two banks’ assets to ZABG was “null and void and of no force or effect”.

Not even the High Court has powers to make such a ruling. The Supreme Court has a role here to advise the nation on whether its ruling still stands. But in a country where the rule of law has been subverted by extrajudicial decisions, we can expect a loud silence from the bench.

Royal Bank lawyer, Sternford Moyo’s remark at a function to announce the “verdict” poignantly summed up what needs to be done.

He said before embarking on the banking law reform, it was prudent to resolve the crisis at hand, arising partly from the defective laws.

He is right.

It is not only the judicial powers vested in the RBZ which are at variance with basic norms of good governance and the rule of law but also the powers given to curators appointed by the RBZ to run troubled banks. The Banking Act says banks should have at least five directors.

It prohibits the directors from sitting on other boards of banks. A curator single-handedly has powers equal to those of directors and managers put together. Not only that, he can also decide to dispose of a bank’s assets without the consent of the shareholders or depositors as was the case with the disposal of Royal and Trust’s assets.

Worse still, he does not fall under a distinct regulatory authority as is the case with liquidators and administrators whose conduct is guided by the Master of the High Court and company law.

It is not surprising therefore to hear the billions the curators made in the process of chaperoning to the grave banks they were expected to revive.

In South Africa, banking laws prohibit curators from disposing of assets during the period of curatorship — even with the consent of shareholders.

The sum total of the weaknesses in the country’s banking laws is that property rights are sacrificed. Gono has spoken about attracting investment and reducing country-risk but the country’s banking laws are a major threat to his aspirations.

Investor trust has a lot to do with secure property rights and that includes guarantees to an investor that there are mechanisms facilitating a fair hearing in the event of a dispute. The banking law regime here does not offer those safeguards. It is not surprising therefore that the World Bank risk premium on investment in Zimbabwe increased from 3,4% in 2000 to 153% in 2004.

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