THE Reserve Bank has barred banks from lending to insiders and related interests in line with banking regulations as the central bank moves to stem the rot in the sector.
Presenting the Monetary Policy Statement on Wednesday, acting central bank governor Charity Dhliwayo expressed concern over high total insider loans which amounted to more than US$170 million.
“The growth in non-performing loans within insider loans is a worrisome development,” she said. “Notably, as at 31 December 2013, the total insider loans in the banking system was US$175,3 million (including interfin). Of these insider loans US$117,4 million (66,97%) were non-performing.”
Dhliwayo said she was concerned with the growth in non-performing loans within insider loans. She said previous efforts failed to deter banks from extending insider loans.
“Henceforth, no bank shall grant loans to insider and related interests as defined in the banking regulations SI 205 of 2000 except where such credit I granted as part of the employees’ conditions of service and is available to other employees.”
She ordered that existing insider loans should not be renewed or rolled over and instructed banks to take measures to ensure repayments are made in terms of the facility. Dhliwayo added that all bank boards should review existing levels of insider loans, ensure adequate provisioning and report insider loans to the central bank.
She said banks must adequately make provisions that reflect the level of credit risk in their loan portfolio.
Any violation of the measures would be penalised in terms of the relevant provisions of the Banking Act, Dhliwayo warned.
She, however, pointed out that companies may access loans from other banking institutions where they are not classified as insiders or related parties.
She urged clients of banking institutions to comply with the repayment terms of their loan agreements with the banks. This will enable banks to provide “the much needed finance required to support the growth of the economy”, Dhliwayo said.
Economist John Robertson applauded efforts by the central bank to curb insider loans that led to non-performing loans.
“It is probably not adequate but I think it will help for senior bank executives to know they cannot get way with not paying,” Robertson said.
He said despite the measures by the central bank there was still need to instil discipline in the financial sector.
“We still need to work on the lack of discipline in the banks,” Robertson said. “Senior bank executives need to know that with authority comes responsibility.”