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Is RBZ doing enough?

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Current problems faced by Zimbabwean banks reveal how little has changed since the 2003 banking sector crisis in which 13 indigenous financial institutions either collapsed or were placed under curatorship.

Recent problems with ReNaissance Merchant Bank, Interfin Banking Corporation and the surrender of licences by Genesis and Royal Bank suggest a near-systemic banking crisis within the sector.

The Zimbabwean banking crisis has been as enduring as the country’s political crisis.

Fragility within the banking sector has overshadowed the significant progress in the sector since financial liberalisation.

Over the past decade, the indigenous bankers have represented Zimbabwe’s best entrepreneurial capabilities and a successful indigenisation model anchored on opening up space for local banks in a market previously dominated by foreign banks.

There has been several success stories — NMB, Kingdom Financial Holdings and TN Bank are notable examples.

However, the severity of the banking crisis demands that academics, regulators and policymakers rethink the contours of the Zimbabwean current financial system and implement a total regulatory overhaul, since the liberalisation of the financial sector in 1991.

The pattern of the collapsed banks and the Reserve Bank of Zimbabwe (RBZ)’s failure to contain the recurring weaknesses, suggests that the crisis should be viewed first and foremost, as a regulatory failure.

The current regulatory architecture — the product of many ad hoc responses to prior crises and antiquated in the face of the evolving structure and role of financial institutions, is also in need of repair. The identical problems faced by indigenous banks before and after the regulatory changes introduced in 2005 suggest inadequacies in the current regulatory regime, weaknesses in supervision and surveillance and chronic regulatory forbearance.

In almost all cases, investigations have revealed abuse of depositor’s funds, tunnelling and a high concentration of non-performing loans most of them to connected parties, all of which is symptomatic of poor corporate governance practices.

The regulatory approach has been predictably reactionary, insipid and at worst — a case of “willful blindness”. Questions need to be asked whether the current regulatory framework is “fit for purpose” and whether the central bank is adequately resourced to supervise and detect rather than react to fragility.

The weaknesses in the regulatory framework have contributed significantly to a case of mimetic isomorphism in which poor practices are common, corporate governance non-existent and punishment — if at all it is delivered, is the withdrawal of a licence without personal sanction to culpable executives.

The perpetual weaknesses within the private indigenous banks highlights that the root cause of the 2003 banking sector crisis was regulatory forbearance and a weak and lax enforcement of the rules with little evidence to suggest that the current regulatory environment had addressed these weaknesses.

In their current format, the regulatory mechanisms introduced by the central bank to curtail ownership concentration and stem corporate governance weaknesses have proved inadequate to
address the weaknesses in the sector.

The central bank has to achieve an equilibrium while focusing on the core of the problem — ownership concentration, connected lending and addressing the problem with non-performing loans.

Lance Mambondiani is an expert on the Zimbabwean banking sector and a teaching assistant in financial markets & corporate governance and International Finance for Development at the University of Manchester.

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