A PLETHORA of hurdles stand in the way of efforts aimed at strengthening and developing a culture of transparency and accountability in the country’s banking sector.


A policy dialogue facilitated by Transparency International Zimbabwe (TIZ)’s Ethics and Accountability Forum in conjunction with Southern African Political Economies (Sapes) Trust last week identified the way in which individuals are held to account for their actions, quality of disclosure of information and creditworthiness as some of benchmarks that can be used to gauge transparency and accountability within the banking sector.

The discussion was informed by the fact that the Zimbabwean banking sector is currently emerging from a tumultuous period characterised by massive bank failures.

“Altogether, more than 17 financial institutions were either closed or placed under curatorship between 2001 and 2008. Notably, a general striking feature of the failure of most indigenous banks shows poor corporate governance and overindulgence of insider loans,” said Jabusile Sibanda, a senior policy advisor with TIZ.

“For example, according to the Reserve Bank of Zimbabwe (RBZ) report on the failure of Renaissance Merchant Bank in 2011, the collapse of the bank was the biggest pillaging scandal where the bank owners, working in cahoots with a pliant management, looted the bank to a shell. In addition, a total of 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.”

Sibanda said the abuse of depositors’ funds through Non-Performing Insider Loans (NPIL) remained the greatest scourge accounting for the hemorrhaging of indigenous banks.

He also noted that the consequences have been devastating with those responsible for the pillaging of the banks not made to account for their actions and depositors losing their hard earned servings without compensation.

To date, it is estimated that $7 billion is currently circulating outside the formal banking system. The situation contributes to low savings that are critical for investment mobilisation and stimulating economic growth especially for a country such as Zimbabwe battling with low manufacturing and industrial capacity utilisation.

An economist with Labour and Economic Research Institute of Zimbabwe (LEDRIZ), Prosper Chitambara said that the stability of banks was threatened by a number of factors that were averse to transparency and accountability.

“While profitability in the banking sector remains strong, stability has been weakened by high levels of non-performing loans…This has exerted pressure on the banks’ balance sheets with adverse effects on their lending operations. The reduction in total core capital is largely attributed to loan loss provisions and subdued earnings performance by some banking institutions,” he said.

“The factors accounting for high levels of non-performing loans (NPLs) include poor corporate governance; inadequate disclosure and lack of transparency; critical gaps in regulatory framework and regulations; inadequate supervision and enforcement, weaknesses within the Reserve Bank of Zimbabwe (RBZ) and weaknesses in the micro and macro environment.”

Chitambara said the high cost of doing business in Zimbabwe has affected the cost of banking, thereby discouraging people from depositing money into the banking sector. Another challenge was to do with corporate governance issues.

“The world over, financial crises are a product of severe corporate governance failure in the banking sector. In most cases, the boards of several financial institutions were found to have been unable to either monitor risk management systems and executives’ salaries or guard against conflicts of interest,” he said.

He called for the application of strict fit-and-proper rules for directors and controlling shareholders, underpinned by periodic board evaluations as well as implementation of stricter related party lending regulations.

Chitambara observed that banks’ executive remuneration should be linked to performance and risk exposure and make bonuses contingent on long term sustainable outcomes.

“To improve transparency and accountability, the Zimbabwean banking sector should introduce a financial stability oversight council. This helps create collective accountability for identifying roles and responding to emerging threats to financial stability,” he said.

Bankers’ Association of Zimbabwe president, Sam Malaba admitted that the banking sector has had its fair share of corporate governance deficiencies, which have resulted in bank failures.

He said that the eight indigenous banks, which closed, failed due to corporate governance malpractices.

Malaba decried shareholders and senior management of banks who abused their positions using depositors’ funds for personal gains as insider loans without collateral security.

“Some examples of unethical practices include abuse of associate companies and or related parties to enable banks to venture into non-banking activities and to channel depositors’ funds to non-regulated entities such as asset management or investment companies,” he said.

Despite the challenges, Malaba said the banking sector has implemented significant reform measures that have addressed banking sector vulnerability and confidence. He said the success of the reforms hinged on cooperation, engagement and collaborative effort between the central bank and banks.

Phineas Kadenge, chairman and senior lecturer in the department of economics at the University of Zimbabwe, said there was need to come up with stress tests to determine capital strength of financial institutions so as to avoid banks going under in times of shocks and improve their stability.