Banks to join new rating framework


Eric Chiriga

WITH effect from January 1 2005, local banks will be expected to be part of the international rating framework, the central bank announced in its monetary policy statement review. <
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Also by September this year, local banks are expected to have changed their board composition in line with international banking practice.

“To encourage local banks to conform to international best practice, there will be a mandatory requirement that each banking institution be subject to an agreed international rating framework,” Reserve Bank of Zimbabwe (RBZ) governor Gideon Gono said.

He said banks are encouraged to apply their operations and systems for this critical requirement.

The governor said this was meant to enhance the scope for easier brokerage of correspondent banking relationships between local financial institutions and their international counterparts.

Gono’s suggestion that there be board change composition comes against a backdrop of a number of local financial institutions who had direct influence on the day-to-day running of the business.

Because of the management interference from the main shareholder this tended to result in the diversion of core business.

“In line with international best practice on corporate governance there is need to strike an appropriate balance between executive and independent non- executive directors,” Gono said.

“Consistent with this, it is now a requirement that boards of banking institutions have majority of independent non-executive directors.”

Under the proposed new set-up an independent director is a non-executive director who would among other things not be a representative of the shareholder with the ability to influence management.

Also, the non-executive would not have been employed by and has no immediate family members who have been employed by the financial institution in an executive capacity.

Gono said against the background of fundamental compromises of sound corporate governance that had been displayed by some institutions no shareholder with a more than 10% stake would form part of the institution’s management.

The September deadline is set to be another hurdle to the banking sector which is set to comply with the $10 billion capitalisation requirements.

The new capaitalisation requirements are set to result in several mergers within the financial sector as a number of small banks will not be able to comply.

Gono defended the central bank’s move towards some locally-owned banks which have been found to be operating outside their core business, saying this was not meant to be an anti-indigenisation drive.

“Our proven support of enthusiasm to have indigenous banks does not however, imply that we will cast a blind eye at indiscipline or create a separate or softer banking code,” Gono said.

“Our view is that being indigenous imposes an even greater responsibility, obligation and duty towards one’s country, towards one’s depositors, a shortcoming which a few of our brothers and sisters running and or owning indigenous institutions seem to have forgotten.”