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Lax laws fuel banking sector rot

AFTER a series of bank failures blamed on poor corporate governance and abuse of depositors’ funds by bank shareholders, Zimbabweans can be forgiven for thinking government does not mind banking executives helping themselves to millions in depositors’ funds as most of them remain scot-free.

Fidelity Mhlanga

Several banks have been closed largely due to non-performing insider loans and poor corporate governance structures.

Depositors are currently struggling to recover funds amounting to more than US$115 million after the collapse of Trust Banking Corporation, Genesis Investment Bank, Royal Bank, Interfin, Capital Bank and Allied Bank.

This comes at a time the public remains sceptical of the banking sector, with many Zimbabweans preferring to keep their cash at home rather than bank it as they lost their funds when the local currency was demonetised in 2009 when a multicurrency basket was introduced.

According to documents seen by the Zimbabwe Independent, Interfin, whose banking licence was cancelled in 2012, owes depositors more than US$60 million.

Trust, shut down in 2013, owes depositors US$2,5 million while Genesis, whose licence was revoked in 2012, owes more than US$1,4 million to depositors.

Deposits trapped in Royal Bank total more than US$11,4 million.
While some of the banks closed by the central bank have conducted forensic audits, the reports of the findings have not been made public.

Analysts say it is a travesty of justice that shareholders and executives line their pockets and live large while depositors languish in poverty.

Last week Royal Bank of Zimbabwe (Royal) creditors pushed for a forensic investigation targeting the beleaguered bank’s CEO Jeffrey Mzwimbi, top executives and other directors amid allegations the financial institution’s top brass flouted banking regulations.
Royal bank surrendered its licence in July 2012 to the central bank after realising it was no longer in a safe and sound financial position as proved by a worsening financial performance.

In a damning letter submitted a fortnight ago to the Clerk of Parliament, Reserve Bank of Zimbabwe (RBZ), Zimbabwe Banks and Allied Workers Union (Zibawu), the Banking and Finance Managers Union of Zimbabwe and former Interfin employees implored the authorities not to turn a blind eye when directors and shareholders are lining their pockets with depositors’ funds.

They also asked the RBZ to make public the forensic report compiled by KPMG in 2012.

Former employees queried how depositors’ funds amounting to more than US$100 million could vanish into thin air with the suspected culprits remaining scot-free.

Against this background, Zibawu has resolved to lobby parliament to stamp out malpractices in the banking sector.

Zibawu secretary-general Peter Mutasa said the union intends to petition parliament to enact a law that protects bank workers when they expose fraudulent transactions in the banking sector.

The union said it was frustrated by the snail’s pace of the RBZ in weeding out the rot threatening the financial services sector, citing the laxity of the regulators in dealing with problems affecting banks.

Given the large number of indigenous bank failures owing to shareholders abuse of depositors’ funds, analysts feel there is a legislation gap in the financial services sector.

Economist John Robertson said it was fundamental that banks uphold ethics and standards to remain afloat.

“There is need for discipline at banks to avoid closing them down. We don’t need new legislation for that; current legislation suffices and should be applied to re-establish banking standards. This would automatically prevent deviation from set standards,” he said.

Another economist, Kipson Gundani said the issue of bank closures was largely a result of corporate governance failures, adding that with or without any governing legislation, banks must act as honest custodians of people’s funds.

The scarcest commodity in Zimbabwe’s banking sector today is prudence and this problem threatens to disintegrate the financial services sector, according to economist Takunda Mugaga.
“There is no bank that can continue operating without prudence,” Mugaga said.

“Some domestic Zimbabwean banks se-em to have been founded to steal people’s money, knowing very well that the legal mechanism to deal with the crime is the weakest link. The question is why are executives in institutions like Interfin scot-free despite stealing people’s money?”

He however said no law could eradicate the theft and abuse of depositors’ funds in indigenous banks.

“What enables the law to work is not the constitution but constitutionalism. To have the law and to apply it are two different things. The crisis in Zimbabwe has gone beyond banks to include all deposit-taking institutions like land barons. White collar crimes are on the increase with land barons fleecing prospective house owners their hard-earned cash through bogus housing co-operatives. The reason why it is more pronounced in banking is because the sector is very sensitive.”

Lawyer Regis Dembure said directors could be prosecuted for fraudulent transactions and mismanagement.

“In terms of the Companies Act, there is a clause which provides for personal liability of directors of a company for gross mismanagement and fraudulent transactions,” he said.

In January last year, then Acting Reserve Bank of Zimbabwe (RBZ) governor Charity Dhliwayo announced the setting up of a commercial court dedicated to adjudicating commercial and banking related crimes.

She said the Reserve Bank would with immediate effect engage the relevant authorities and stakeholders to address commercial and banking related cases which are taking a long time to be settled through the court system.

A year later the commercial court is still to come into existence despite continued bank failures.

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