Banking reforms provoke quarrels

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RBZ Governor John Mangudya

THERE are serious concerns within the financial services sector that the proposed amendments to the Banking Act, designed to help improve monitoring and supervision of the banking sector, could leave some key entities in the financial services sector emasculated or paralysed.

Kudzai Kuwaza

Presenting the mid-term monetary policy in July this year, Reserve Bank of Zimbabwe (RBZ) governor John Mangudya said the banking amendments were aimed at improving the corporate governance of banking institutions by, among other things, specifying the statutory duties of directors and senior managers of banking institutions.

The reforms are also aimed at introducing greater transparency in the shareholding and operations of banking institutions.

They also seek to align banking laws and ensure that there are no inconsistencies in statutes governing banking institutions as well as to effectively empower the RBZ to deal with bank resolution.

While banking sector reforms are intended to improve the financial services, some senior banking officials however fear the amendments could have unintended consequences on some important institutions in the sector.

RBZ Governor John Mangudya

RBZ Governor John Mangudya

One of the entities that might be negatively affected by this is the Deposit Protection Corporation, one senior banking executive said.

“If you look at the amendments, they have the potential of seriously weakening the DPC,” an official said. “For instance, all clauses that mandate the central bank to consult the DPC have been removed in the amendments.

“Another clause that seriously threatens the DPC is the one that obliges the corporation to report to the RBZ.

This is illegal as the corporation should report to the Master of the High Court, not the central bank.”

Banking officials say probably the most contentious of the amendments is the clause that removes the corporation’s right to carry out special examinations on banks, whose operations are suspected to be detrimental to its depositors.

“The current Act allows DPC to carry out special examinations on financial institutions whose operations are suspected to be detrimental to its depositors,” another senior official in the financial services said.

“It means the insurer cannot have access to the risk it is undertaking. It does not make sense. It is like telling the insurer to cover the risk of a house damaged by fire but without getting access to the house which is nonsensical.”

The DPC, formed in 2003, is an autonomous statutory body governed by the Deposit Protection Corporation Act (Chapter 24:29) to administer the Deposit Protection Fund and compensate depositors in the event of a bank failure.

The corporation is in the process of compensating depositors of several financial institutions that have closed which include Royal, Trust, Genesis, Capital, AfrAsia and Allied banks.

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