Fresh crisis hits Zim banking sector

Harare – Zimbabwe’s financial services sector, still smarting from the 2004 crisis, has been shaken yet again by the Renaissance Merchant Bank debacle that has seen the institution placed under the management of a curator. This has seen fears mount over the possibility of a contagion effect, although Reserve Bank of Zimbabwe Governor Dr Gideon Gono and Bankers Association of Zimbabwe president John Mushayavanhu have ruled out any possible downstream effects. However, the capital markets remain jittery as the sector’s fragility has once again been exposed. The involvement of Finance Minister Tendai Biti in the saga has also sent shockwaves. The minister is accused of un-procedurally ordering the state pension fund to lend money to the troubled bank because it is run by people perceived to be close to him and the MDC-T party that he is secretary-general of. Biti is yet to comprehensively clear his name. Banks were beginning to re-establish their feet, winning depositor’s confidence as witnessed by rising deposits to about US$2,4 billion from US$600 million a year ago. The RMB saga has conjured bad memories of the 2004 banking sector crisis. The latest case remains the talk of the town, a month after revelations of its insolvency, poor corporate governance structures and non-performing insider loans were unearthed. The central bank’s resolve was put to test when investigations unearthed the massive scam at RMB that reduced the 2004 cases to child’s play. Investigations by the Reserve Bank’s supervision and surveillance division showed Rennaisance, one of the institutions still to meet the minimum capital threshold of US$10 million for merchant banks, requires about US$55 million to recapitalize given a US$16 million deficit, and an additional US$35 million in contingent liabilities of its holding company, Renaissance Financial Holdings. The situation in the financial sector has been compounded by fears that at least five banks are still to meet the minimum capital thresholds as the June 30 deadline approaches. This was extended from December 31, 2010 as some banks pleaded for more time to raise the funds. There are strong fears that some banks may have to close down or merge with the big boys to survive the axe. Most large banks have, however, met the thresholds. The names of the banks that appear to be in trouble have not been available, with the central bank claiming client confidentiality. But many questions are being asked as regards the sector’s state at a time the economy is recovering. “I can understand the uncertainty in the market. Banks have held a bad reputation over the past few years and they certainly did not need the RMB case to complicate the situation,” commented one stockbroker. “Emphasis should really be put on transparency and accountability because we cannot allow individuals to destroy the sector’s reputation,” he added. The issue of undercapitalization of some banks is also compounded by the fact that large sums loaned to individuals and companies have not been repaid. The International Monetary Fund noted growth in the sector but expressed concern over the latest developments. “The multicurrency system helped jumpstart intermediation with the size of the banking system surpassing the pre-hyperinflation levels,” said the mult-ilender at the end of Article IV consultations with Zimbabwe. There is also need for better corporate governance. The Basel Committee on banking supervision defines corporate governance as: “The manner in which the business and affairs of individual banking institutions are governed by their boards of directors and senior management, including the setting of corporate objectives and a bank’s risk profile; aligning corporate activities and behavioursto compliance with applicable laws and regulations, while protecting the interests of depositors and other stakeholders.” Time will tell the extent to which the sector has been exposed to the RMB saga and any other yet-to-be detected cases, as widely suspected by analysts. The central bank is conducting sector-wide investigations while RMB curator Reggie Saruchera is expected to dig deeper into bank’s actual state of affairs.

June 2011
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