THE Reserve Bank of Zimbabwe (RBZ) has tasked its Financial Intelligence Unit (FIU) to guard against huge daily forex withdrawals at local banks as it tightens screws on the country’s financial services sector.
The central bank is threatening to unleash its powers under Statutory Instrument 127 of 2021 (SI 127 of 2021) on dealers that flout daily limits.
The SI 127 was gazetted on May 26, 2021 with the aim of instilling discipline in the financial sector and it imposes a fixed penalty of ZW$5 million (US$41 500) and an additional 5% daily fine for a 90-day period.
The central bank has warned that it will subject daily withdrawals to strict scrutiny, but urges the banking sector to encourage clients to adopt e-commerce that involve use of plastic money to avoid transactions involving huge amounts of hard cash.
Last year, the Zimbabwe Independent, in conjunction with Information for Development Trust (IDT), a non-profit making organisation that supports journalists in Southern Africa to investigate stories on public sector corruption and bad governance, revealed huge daily cash withdrawals of up to US$300 000 made by former first lady Grace Mugabe at CBZ bank in 2019.
At that time the daily cash withdrawal limit was set for ZW$300, an equivalent of less than US$5 for ordinary citizens
It was during the period when Grace’s late husband and former president was holed up in Singapore as a medical tourist.
In a follow up investigation, it was revealed that the RBZ had since stepped up efforts to curb huge foreign currency withdrawals.
John Mangudya, the RBZ governor confirmed that the FIU was on the lookout for unsanctioned withdrawals.
“The measure (to curb huge withdrawals) is there. (It) stipulates that any high amounts require prior approval from the FIU before withdrawal,” Mangudya said.
A member of the RBZ’s Monetary Policy Committee (MPC), Persistence Gwanyanya, said banks should stick to the US$1 000 daily cash withdrawal limits for individuals and US$10 000 for corporates, or alternatively make use of e-banking for transactions.
He warned that severe penalties would be imposed on banks that do not heed the withdrawal limits.
For a long time, banks have been accused of aiding black market foreign trade by allowing clandestine withdrawals of cash and offloading it onto the streets.
“The FIU does ad hoc checks to see if they have not been lied to by banks wishing to allow their clients to withdraw cash above the daily limit or weekly limit,” Gwanyanya said.
Banks, however, can use their discretion and prudence to authorise the withdrawal of amounts above the daily individual and corporate limits for as long as there is sufficient justification and the FIU is involved.
“We do not unreasonably deny them (banks and clients) the opportunity to withdraw bigger amounts. We have, for instance, farmers who want to pay wages. They have to make applications that are genuine and provide essential details like identity numbers of the workers (to be paid),” Gwanyanya said.
He added that SI 127 would be used to punish errant banks.
“We now have SI 127 of 2021 which has been incorporated into the Finance Act. The RBZ now has more powers and we don’t even need to go to the courts.
“This power we have is to punish banks that could have abused facilities or been found on the wrong side of the law. The SI has increased the powers of the central bank to deal with market behaviour,” Gwanyanya added.
In the past, numerous socialites, celebrities and politicians have publicly flaunted huge sums of cash.
The RBZ, however, cannot directly deal with such individuals as suspects flouting the bank limits law as it is mandated to engage banks directly.
“The RBZ’s customers are banks. The customers of banks are ordinary people. The central bank does not deal directly with customers. If the customers abuse that cash we go to the bank and punish the bank,” Gwanyanya said.
The CBZ group chief executive officer, Blessing Mudavanhu — whose bank allowed the huge withdrawals by Grace Mugabe — referred questions to the bank’s group marketing and corporate affairs executive manager, Matilda Nyathi.
In her written responses she said the commercial bank would adhere to RBZ regulations.
“CBZ Bank is a registered commercial bank that operates within the set parameters and confines of the law as required by the RBZ.
“There are clear and set measures that guide cash withdrawals either in ZWL or USD that are clearly communicated to all our clients as per mandatory requirement by the central bank,” Nyathi said.
“Any case where a client requires cash withdrawal that is above the set limit, such requests are handled through set approval processes that are above board and these transactions are subject to approval by the regulator.”
Tapiwa Mashakada, the former minister of Investment Promotion and Economic Development, hailed the new measures to curb excessive withdrawals.
“The RBZ is at the apex of the financial system so it has the fiduciary responsibility to control withdrawals,” Mashakada said.
However, Gift Mugano, an economist, said putting caps on withdrawals was “complicated”, adding that cash liquidity encouraged export receipts.
The informal sector, within which millions in cash circulate outside the banking system, may easily be discouraged from banking if “they have to be explaining things to the FIU each time they want more cash”.
“Putting limits to withdrawal of foreign currency is a challenge. Obviously the central bank wants to restrain or reduce concentration of foreign currency in the formal sector. They also want to make sure that money is available for the auction system. But that creates a bit of anxiety on the part of businesses or individuals,” Mugano said.
Prosper Chitambara, a former World Bank economist, said excessive withdrawals indicated that depositors lacked confidence in the formal banking system and were discouraged by lack of incentives to save.