New Banking Act good for economy — RBZ

HARARE - Zimbabwe's new banking regulations will strengthen the financial services industry and bring stability to the economy, the central bank has said.

Reserve Bank of Zimbabwe (RBZ) deputy governor Charity Dhliwayo said the banking sector must be strengthened through evolving legal and regulatory reforms in an effort to sustain the growth and development of the country’s financial system.

“In this regard, much work has gone into strengthening the legal and regulatory framework for banking institutions,” she told delegates attending the Banking, Finance and Insurance Conference and Exhibition recently.

“Proposals to amend the Banking Act aimed at enhancing governance structures within banks, strengthening the powers of the regulator and punishing non-compliance or any errant activities have been made,” Dhliwayo added.

This comes after six banks — AfrAsia Bank Zimbabwe, Interfin, Trust Bank, Allied Bank, Capital Bank and Royal Bank — have closed operations since dollarisation in 2009 due to poor governance structure and bad loan books among other things.

Dhliwayo said the central bank attached great significance to the stability and soundness of the financial system as problems in the banking sector have profound effects on the real and service sectors of the economy.

“Due to the very nature of financial institutions, the failure of just one bank, sends waves of differing magnitudes across the entire economy. Bank failures impact negatively on the real sector by causing company closures and job losses. As such effective bank regulation and supervision is therefore essential for financial and economic stabilisation,” she said.

Market experts say that banking institutions play a unique role in the economic process and numerous researches have confirmed that strong linkages exist between financial sector stability and economic growth.

As part of strategies to protect depositors’ funds from abuse by bank executives, the Deposit Protection Corporation (DPC) has come up with new mechanisms to deal with failing banks by allowing a stable bank to take over the assets of a closing bank.

“There was no mechanism to resolve failing banks and now we have a fund and skills to deal with failing banks,” DPC chief executive John Chikura told stakeholders in Bulawayo last week.

“In the future, you will notice that we will be involved in restructuring of banks and intervening by way of providing liquidity using what are called purchase and assumption, which is a process where when banking is failing we can quietly resolve the issue without making much noise,” he said.

Chikura said the same method was currently being used in some mature markets in countries such as the United States of America and many European nations.

“If a bank is failing and has some assets in Chipinge or Filabusi we then approach a strong bank to take over the assets. The assets of a weak bank are assumed by a strong bank and this is done without people knowing and there will be no interruption to the banking services,” he said.

To date, DPC has paid out $2,6 million to 9 495 depositors of the six closed banks and is lobbying for a separate insolvency regime or additional legal provisions for banks.

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