RBZ moves in on banks’ insider loans

via RBZ moves in on banks’ insider loans – DailyNews Live by John Kachembere  2 FEBRUARY 2014

The Reserve Bank of Zimbabwe (RBZ) has ordered banks to stop issuing insider loans following a rise in abuse of depositors’ funds by shareholders and directors.

According the central bank, last year insider loans in the banking sector totalled $175,3 million of which about $117,4 million (66,97 percent) were non-performing.

Acting RBZ governor, Charity Dhliwayo, said the collapse of most local banks has been as a result of the undue influence of controlling shareholders who abused depositors’ funds.

“We have noted the continued abuse of loans and advances by related parties particularly, directors and shareholders  which has resulted in huge levels of non-performing insider loans,” she said in her maiden Monetary Policy Statement last week.

“In addition, the ever-greening of non-performing loans has resulted in the understatement of the level of provisions for bad and doubtful debts, thereby overstating the respective institutions ‘earnings and capital positions,” she said.

Dhliwayo, who recently took over from Gideon Gono, said banks are now required to set aside adequate provisions that reflect the level of credit risk in their loan portfolio.

In this context, the banking sector’s average non-performing loans to total loans ratio stood at 15,92 percent as at December 31, 2013.

The central bank chief also said authorities were working on curbing individuals’ shareholding in financial institutions.

She noted that government was set to amend the Banking Act to ensure that no individual holds more than 10 percent shareholding in a banking institution or its controlling company.

“While directors have common law duties to the company, the new provisions will extend a fiduciary duty of care to the customers,” she said, adding “the new provisions will also seek to introduce criminal as well as civil liability of any shareholder, director or senior manager of a banking institution, who will be found to have acted negligently or fraudulently, resulting in loss of money by depositors or failure of a banking institution,” she said.

This follows persistent calls by various stakeholders in the country urging the government to institute criminal procedures on bank executives who abuse depositor’s funds, leading to the collapse of financial institutions.

For instance, Renaissance Merchant Bank  now Capital Bank – was driven into negative equity after top shareholders of its holding company allegedly borrowed millions of dollars in depositors’ funds, in breach of banking regulations.

Patterson Timba had 44,7 percent shareholding in Renaissance Financial Holdings Limited through Bethel Trust and other vehicles while his then fellow top executive, Dunmore Kundishora, held an effective 24,2 percent stake.

The two thus jointly held almost 69 percent, allowing them to dominate the ownership.