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Reckless bank directors, executives face legal suits

Business
Directors and senior executives of banking institutions will face legal action if they act recklessly or negligently, new amendments to the Banking Act have shown.

Directors and senior executives of banking institutions will face legal action if they act recklessly or negligently, new amendments to the Banking Act have shown.

BY NDAMU SANDU

If their bank or company is placed under curatorship or wound up and its business has not been carried on prudently, “they will be liable for its debts unless they establish that they were not responsible”.

The Registrar of Banks and the Deposit Protection Corporation (DPC) may take legal action against them on behalf of depositors and creditors who suffer loss if directors and executives act recklessly, negligently or fraudulently.

Directors have to attend at least three-quarters of the board meetings convened.

Any director who fails to do so “shall be regarded as not having exercised the degree of diligence required of him or her”. A new section, 20B, will be inserted to compel directors of banking institutions and controlling companies to disclose their assets and business activities on an annual basis. If they fail to do so, they will not be allowed to carry out any valid act as directors.

BANKING HALL

Section 40 of the Banking Act will be amended to disqualify executive directors and employees from being appointed to the audit committees of banking institutions to enhance the independence of committees.

The amendment will also deal with multiple directorship disqualifying those who are directors of four companies to be appointed as non-executive directors of banking institutions.

Directors of three other companies will be disqualified from being executive directors of banking institutions. One is disqualified for appointment as a director if he or she has been convicted of money laundering or terrorist financing.

Directors will serve for 10 years, “after which they will have to wait for at least five years before being re-appointed”.

Under Clause 22, a new section, 31A, will compel banking institutions to have their financial soundness assessed at least once a year by an accredited assessment institution.

Analysts say the reforms will bring order into the banking sector.

Zimbabwe has witnessed a number of bank failures all with the same ailments — undercapitalisation, poor corporate governance, insider non-performing loans and abuse of depositors’ funds akin to declaration of dividend to shareholders.

Six banks — Allied, Trust, AfrAsia, Capital, Interfin and Royal — have been closed since 2012. Last month, DPC said it has so far paid out $2,6 million to 9 495 depositors of the six closed banks.