Failed banks cost depositors US$190 million
THE country’s shattered bank depositors have lost more than US$190 million from collapsed banks since 2012, denting public confidence in the country’s frail but now-recovering banking sector, the Financial Gazette’s Companies & Markets (C&M) can report.
Sources in the banking sector told C&M that approximately 54 000 depositors lost money following the closure of Royal Bank, Trust Bank, Genesis, Allied Bank, Interfin and AfrAsia Bank Zimbabwe.
The failed banks appeared to have engaged in over-trading, with some failing to manage risk.
Their boards and management also failed to put in place strong risk management systems.
Further pressure came from increased competition resulting in narrowing of margins and reduced profitability against a background of increased credit defaults.
Apart from the banking public enduring tremendous psychological and financial trauma as a result of bank failures, the collapse of a single financial institution has the potential to cause widespread disruption to the country’s payments system.
A spokesman for the Deposit Protection Corporation (DPC), Allen Musadziruma, said in response to questions from C&M that it was incorrect to suggest that depositors had lost US$190 million. He said this insinuated “that depositors will not recover the funds in the closed banks”.
But he told C&M: “We can confirm that six closed banks namely AfrAsia Bank, Allied Bank, Interfin Bank, Genesis Investment Bank, Royal Bank and Trust Bank had an aggregate amount of US$185,6 million. In addition, Tetrad Investment Bank, which is currently under provisional judicial management, had an aggregate balance of US$48,6 million.”
Musadziruma said DPC protected depositors by providing compensation in the event of bank failure.
“In line with our mandate, the cover level is currently set at US$500 per depositor per bank. What this means is that all clients of the closed bank with balances equal to or below US$500 are guaranteed to be reimbursed in full the amount that was in their account at the time of bank closure provided they submit a duly completed claim form,” he said.
“Outstanding balance above the cover level of US$500 is still paid through the liquidation process on a pro-rata basis. A total of US$6,4 million in guaranteed compensation is readily available for reimbursement to depositors up to the maximum insurable limit of US$500 per depositor per bank. We are currently in the process of reimbursing depositors of the six closed banks and we urge the media to assist in informing and raising awareness to the public to submit their claim forms,” Musadziruma said.
He added: “To date, we have recovered over US$27 million through the liquidation process, that is, proceeds realised from the disposal of the bank’s assets and recoveries from outstanding loans. Please take note liquidation is an ongoing process and there are high chances we will be recovering more funds from this process in line with our mandate of protecting depositors.”
Apparently, in the last few years, banks have been exposed to higher than expected credit losses, although the bulk of the institutions were accused of shareholder and management delinquency, with insider loans playing a bigger role in their insolvencies.
Non-performing loans (NPLs) since 2009 when the country ditched its own currency to adopt a multiple currency regime to escape hyperinflationary pressures reached close to US$1 billion in 2014 or 20,14 percent of total loans in the banking sector during the period.
This became the biggest threat to banking sector stability.
The growing NPL portfolio within the banking sector had been a result of poor credit analysis; some loans were extended to cronies and insiders without collateral.
However, NPLs dropped to 10,9 percent of total deposits last year, according to latest official statistics.
This was after the Reserve Bank of Zimbabwe (RBZ) established the Zimbabwe Asset Management Corporation (ZAMCO) to purchase NPLs that had the potential for recovery.
The acquisition of NPLs by ZAMCO is expected to strengthen banks’ balance sheets, enabling them to access fresh capital to fund productive sectors and help spur economic growth.
The RBZ’s efforts were meant to restore confidence in the banking sector, which had been ruined by the number of banks that have failed considering the key role that the financial sector plays in the development of the economy.
The banking sector currently comprises of 13 operating commercial banks, one merchant bank, four building societies and one savings bank.
In 1980, there were only five banking institutions in the sector but due to financial reforms in the 1990s, more players entered the sector which was previously dominated by large foreign-owned banks.
Interestingly, there were 40 players in the banking sector in 2002.
Banks have recently been tightening their lending terms to avoid poorly performing loans.
To help local banks, the RBZ is in the process of establishing a Credit Reference Bureau, which will assist in determining the credit worthiness of individuals and institutions.
In fact, the central bank has since appointed a credit checker from the Czech Republic, Creditinfo, to set up the country’s Credit Reference Bureau at a cost of US$1,8 million.
The move is expected to improve credit risk management in the financial sector. The RBZ has also amended the Banking Act, which has since been approved by Cabinet.
This would provide enabling legislation to cover operations of a credit registry and appropriate regulations for the licensing and operation of private credit reference bureaus.
The bureaus would enhance the verification process of borrowers, enabling bankers to assess credit risk and reduce the level of NPLs in the banking sector.
The system would also allow lenders to determine how much and at what rates to lend. It would induce transparency in the economy as there would be greater sharing of information, making financial institutions aware of their customers’ financial exposures.
Credit bureaus are set up to collect individuals, corporate and other legal entities’ credit data from a variety of sources. The data is consolidated into profiles and made available on request to subscribers.
This helps enhance financial sector stability by promoting more robust risk management practices, reducing credit risk, increasing the supply of credit to fuel growth-related activities and helping to lower interest rates.
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