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Shareholders to be held liable for bank collapses

Shareholders to be held liable for bank collapses

November 9, 2012 in Business

TREASURY is finalising sweeping amendments to the Banking Act which will, 
among other things, see shareholders being held responsible for bank 

Report by Paidamoyo Muzulu/Clive Mphambela

The amendments will compel impromptu and mandatory stress tests, limit the 
number of shares an individual can hold in a bank as well as outlaw multiple 
directorships for banking institutions.

Finance minister Tendai Biti is spearheading the amendments to the Banking 
Act to bring lasting stability to the financial services sector after two 
banks –– Interfin Banking Corporation and Renaissance Merchant Bank –– 
collapsed this year and last year respectively, owing to poor corporate 
governance and lack of periodic stress tests on banking institutions. 
Genesis Investment Bank also collapsed.

“We are working on comprehensive amendments to the Banking Act which are now 
with the principals,” Biti told parliamentarians at the pre-budget seminar 
in Victoria Falls last week.

“The amendments will address the failing corporate governance we witnessed 
at Interfin and Renaissance, where shareholders were more powerful than the 
board and management,” said Biti.

If the amendments are incorporated into law, a bank’s shareholders will 
become liable for its collapse.

“We will lift the corporate veil so that the shareholders will also feel the 
pain of the collapse of their banks, just like depositors,” Biti said.

“We will put a limit to the number of shares an individual can control in a 
banking institution and a banker would only be allowed to sit on not more 
than two boards of a financial institution,” he added.
The proposed Banking Bill will also introduce a banking ombudsman who will 
look into issues such as interest rates and would have the same powers as 
provided under the Consumer Protection Act.

The banking ombudsman will adjudicate matters relating to fair trade 

There will be mandatory and random stress tests on a bank’s financial 
position to protect depositors, Biti said.

He said the amendments would also create synergies among the three financial 
regulatory bodies –– the Securities Commission of Zimbabwe, the Insurance 
and Pensions Commission and the Reserve Bank of Zimbabwe.

Stakeholders have called on the regulatory authorities to improve the 
governance structures within the local banking sector.

Biti’s proposals also come soon after the International Monetary Fund staff 
team, in its concluding report following Article IV consultations in June, 
identified the reduction of financial sector vulnerabilities as a key 
objective for government.

“The IMF welcomed that the financial regulatory framework was being 
strengthened after a long period of forbearance. In July 2012, the RBZ 
announced steep capital requirement increases, to be phased over two years. 
The announced increases in minimum capital requirements is expected to speed 
up consolidation in the banking system. The RBZ will need to monitor closely 
banks’ efforts to comply with the new requirements, which will undoubtedly 
alter the banking system structures,” the IMF said.

The frequent and unannounced spot checks and stress tests on banks’ balance 
sheets will help detect trouble early, enabling authorities to take timely 
corrective action.

The IMF strongly advocated for a more proactive approach to banking 
supervision, noting that a significant number of banks remained inadequately 
capitalised and relatively weak despite meeting minimum capital 

The team raised concern credit risks were unacceptably high, particularly 
for smaller banks that have low capital buffers, adding asset quality had 
deteriorated due to unsound lending practices, poor risk management and weak 
corporate governance.

The IMF said it would also be essential to ensure tight and transparent 
governance in the banking sector.

Analysts have attributed the breakdown of corporate governance structures in 
banks and public listed companies to the overbearing influence and power of 
some shareholder managers as well as multiple directorships blamed for 
diluting board member effectiveness and compromising their independence.

“Staff welcomes planned amendments to the Banking Act to improve oversight 
and surveillance. The authorities plan to strengthen the Troubled and 
Insolvent Bank Resolution Framework to incorporate prompt corrective 
actions, and improve corporate governance,” the IMF team said in its report.


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