Harare — The cancellation of Genesis Investment Bank's foreign currency dealing licence last Friday for illegal foreign currency trades is only but a fraction of what is happening in the banking sector.

It also raises concerns whether the corrective measures taken by the Reserve Bank of Zimbabwe are deterrent enough to stop future malpractices.

Whilst several economic agents have for long trusted banks as reliable custodians of handling foreign currency dealings, it has become apparent that banks are major actors in creating distortions in the movement of the exchange rate.

Economists said yesterday the existence of the "other rate" -- the parallel rate -- created arbitrage opportunities for banks with weaker control systems to manipulate the exchange system.

They did not rule out the abuse of the interbank exchange market by several other authorised foreign currency handlers.

The issue is not why banks lose foreign currency trading licences. It is clear that it is a result of prohibited trading activities.

So far, the tendency to revoke forex trading licences has not helped, and analysts believe this is one major reason why banks have continued straying from their operations. "I think the RBZ was trying to send a message to banks involved in illegal currency transactions," said an analyst with ZB Financial Holdings.

"But the message has not been strong enough to stop banks from engaging in unprocedural dealings. It must be firm enough to stop such actions without leading to another crisis in the banking sector." Genesis has been found wanting before. The investment bank lost its forex licence in 2003 and got it back a year later. Four years down the line, the licence is revoked again.

The same has happened with NMB Bank, which has lost its foreign currency trading licence twice inside the past five years. On the two occasions, they got it back. Genesis lost its licence due to under invoicing currency remittances to the RBZ, and favouring selected individuals and corporates with above market exchange rates.

Against exchange control regulations, Genesis also facilitated withdrawals from foreign currency accounts in excess of stipulated US$1 000 for individuals and corporates, and US$5 000 for international organisations. In most first world economies, offences related to banking fraud are taken more seriously. A bank could lose its complete trading licence and top executives may be imprisoned.

Analysts said if proper and transparency audits were to be undertaken with corrective measures being imposed on those found on the wrong side of the law, several, if not all banks might loose their licences. "This tendency will not cease. These are only symptoms of an under-performing economy with a huge foreign currency deficit," said an investment banker with a local merchant bank.

"I would like to think if investigations are to be taken on all banks, they might all be found on the wrong side of the law. We can not run away from that."

The banking sector remains central to any economy's growth providing capital needed for development.