RBZ must tighten grip on banks — CZI

via RBZ must tighten grip on banks — CZI – The Zimbabwe Independent February 6, 2015 by Taurai Mangudhla

ZIMBABWE’S captains of industry have called on the central bank to tighten its grip on the country’s banks amid growing consensus the financial services sector is not safe and sound due to a series of bank closures that have rocked industry lately.

Confederation of Zimbabwe Industries (CZI) president Charles Msipa told businessdigest last week that bank closures undermined investor confidence and affect businesses whose deposits get trapped in these struggling financial institutions.

Msipa said the central bank should not hesitate to close banks that are no longer viable and have no hope of being turned around to avoid a negative ripple effect on the financial services sector, business and the economy at large.

“For a company, you can imagine what a setback that is not only to the cash flow, but in terms of the time also. We have had situations where you have to make a payment and the bank has no funds so your creditors think you are lying,” said Msipa on the sidelines of a French business delegation press briefing last week.

“We need to have confidence in our banks so if the banks are no longer viable, it is better for the central bank to close them than for them to continue to operate because the damage can spread. It’s unfortunate, but a symptom of our economy. Bank closures happen even in big economies.”

Msipa said there was need for the Reserve Bank of Zimbabwe to strengthen its surveillance systems. He said if the central bank strengthens its surveillance, Zimbabwe would have a banking system that is able to inspire business.

He said the Deposit Protection Corporation also needs to be strengthened.

CZI business council member Anthony Mandiwanza said business is worried by negative developments in the banking sector, which send bad messages to both locals and foreigners.

“If I have my money in a certain financial institution and I am not able to access it for the issue that it intended for. It’s a huge financial risk and you know we came out of 2008 where businesses were put in a tailspin because of these financial issues and these tell-tales are a cause for concern,” said Mandiwanza.

“Our expectation as business is that the central bank must provide leadership on what is currently happening because it reflects badly on the central bank on its mandate of monitoring and supervising.”

The CZI business council member said the RBZ must give periodic reports on the status of the banking sector, naming institutions that are struggling and those that are sound as part of transparent practices that should boost depositors’ confidence.

“If they remain quiet, then you know perception is the mother of all battles, whether it’s accurate or not, you know it takes a life on its own,” said Mandiwanza.

Commentating on the series of bank closures, Mandiwanza said: “Zimbabwe’s economy is overbanked in relation to our GDP going by the number of banks we have. Its overbanked so there is bound to be unfortunately a very painful self-correcting programme.”

Industry’s concerns on the state of the financial services sector comes after a number of banks have either surrendered licenses, been put under liquidation or placed under judicial management with millions of depositors funds trapped in the ailing institutions.

Earlier this week, troubled Tetrad Investment Bank announced it had been placed under provisional judicial management.

Tetrad Investment Bank was in November 2014 suspended by the RBZ from undertaking banking activities after failing to secure investors to turn its fortunes from a negative US$19,7 million capital position as at September 2014.

The High Court in November 2014 also confirmed a provisional liquidation order for Royal bank which was granted in February 2013 and challenged by the bank’s shareholders.

The RBZ early January 2015 applied for the liquidation of Interfin Bank Ltd after a four year curatorship period.

In the first week of last month, Transport minister Obert Mpofu’s Allied Bank also surrendered its operating licence.