Banking crisis deep-rooted

IS it a case of central bank governor Gideon Gono rejoicing in the failure of banks or is it that our financial institutions have become citadels of indiscipline? The central bank and ban

ks have combined to make a cast that is responsible for the public misery and with it, the erosion of all public confidence in the country’s banking sector.

This week we reveal the parlous state of the country’s financial services sector in which banks currently laden with illiquid assets such as stocks, property, motor vehicles and foreign currency are in short positions. In simple terms, their liabilities now exceed their assets and as a result they cannot collect cash from the central bank hence the queues which have become a common feature at banks.

The same banks cannot go the central bank for overnight accommodation. Gono in an apparent move to inflict pain, has hiked the rate to 1 500% from 1 100% in response to the crisis.

This phenomenon, which also obtained in 2003 and 2004, has largely been blamed on banks engaging in speculative behaviour and acting outside the policy guidelines of the central bank. The current fiasco which is exposed in this edition of the paper is worrying. The central bank which is entrusted with supervising and counselling errant banks conveniently went to sleep when it mattered.

There is all the evidence that the central bank saw this crisis coming but did not intervene to forestall it. Gono’s monetary policy statement last October contained a telling contradiction which was generally ignored. Talking about the status of banks, Gono said the sector had “remained generally safe and sound and this is attributable to enhanced supervision methods being employed by the Reserves Bank, as well as continued improvements in the risk management and corporate governance among banking institutions themselves”.

He then stated that he was “concerned with the reemergence and increase in incestuous relationships between certain banking institutions, their holding companies and other related parties that are reminiscent of what we saw in the pre-2003 era”.

He sounded another warning to banks: “Some unprincipled shareholders and unscrupulous executives continue to use convoluted group structures as conduits for abuse of depositors’ funds and engagement in non-permissible activities such as purchase of stocks on the equity market,” he said.

So there you have it. Gono has been aware of banks buying stocks to hedge against inflation. By the same token, he was aware that banks were participating in real estate deals and that they were buying cars and foreign currency on the parallel market. As the regulator, we ask what the governor did about this? Three months down the line, banks are in trouble.

The central bank will say tongue in cheek that it is not responsible for the current state of affairs in the sector. It will blame truant bankers for the mess. It is true that if banks acted outside the law, they are culpable for this current mess notwithstanding apparent policy aberrations the central bank has tried to enforce. But equally, the same central bank is culpable in as far as it is responsible for creating a macro-economic environment which allows speculative tendencies to flourish.

Bankers whose banks have been caught in this maze will argue that they have a duty to ensure that their businesses survive. They will argue that due to hyperinflation, they are not making money from their normal business operations hence the investment in stocks and other illiquid assets. They will regard Gono’s measures this week to increase accommodation rates on those institutions in trouble as punitive. In other words, Gono already stands accused of trying to close banks again.

This almost permanent stand-off between the central bank and banks has only worked well to kill public confidence in the banking sector. If depositors cannot withdraw their cash from banks on call, and if policy interventions from the central bank fail to rectify the problem, then we have a real problem on our hands. The stability of any banking institution is built on the foundation of depositors’ confidence in the ability of the sector to deliver. The state of affairs in the banking sector today is indicative of a serious policy deficiency. How are banks expected to make money in an environment where inflation has reached stratospheric levels of 150 000% — according to the IMF — if they cannot invest in high-yielding vehicles?

The mess in the banking sector is indicative of serious policy flaws which has become the hallmark of Zanu PF governance. We urge the banking sector to seriously consider lobbying the government and central bank for more prudent policies in the banking sector to avert the current cat and mouse games because depositors are not interested in the politics of banks. They simply want their money.

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