1 January 2013

Zimbabwe: Royal Bank Faces Liquidation

ROYAL Bank which surrendered its licence six months ago may go into liquidation after failing to secure new investors. Central bank governor Dr Gideon Gono said "decisive action would be communicated soon".

Dr Gono said the bank was likely to be liquidated. Analysts have also pointed out that the bank had become "systematically" insignificant to the industry since its closure.

"That action will seal the fate of Royal Bank because of its failure to rectify the weaknesses that led to its closure in July," said Dr Gono in an interview yesterday.

"Since we closed Royal Bank six months ago, we gave them a very long rope to assist themselves, but they failed. There is no other institution where we exercised the abundance of caution than in the case of Royal Bank.

"For instance, we gave then enough time to bring on board new investors. We even travelled as the central bank with them to 'far away' places to help them negotiate with potential investors. But these efforts came to naught. In such a situation, there is only one way to rectify the situation and that will be communicated to the bank soon."

Dr Gono said he would consult with his principals on the way forward.

At the time of its closure, Royal Bank was estimated to have a deposit base of US$1,5 million out of the total industry's total deposits of about US$4 billion.

The closure of the bank was not expected to cause any disturbances in the banking sector as it had an insignificant loan portfolio of US$1,5 million.

Dr Gono said he was satisfied with the progress made by other institutions to meet the new requirements.

Banks are required to meet phased minimum capital thresholds for each respective class of banking in six-monthly periods, starting from December 31, 2012, until June 2014.

The new measures require commercial and merchant banks to build up their equity capital to US$100 million from US$12,5 million and US$10 million respectively.

Building societies are required to meet US$80 million new capital levels from US$10 million, while discount and finance houses are expected to put up US$60 million, from the current US$7,5 million to support their operations.

The capital base for microfinance institutions was raised from US$1 million to US$5 million.

"December 31 is the monetary authority's and Government deadline," said Dr Gono.

"But it does not signal the Armageddon of the bank. It is a planning date again during which certain action and programmes are anchored on. It is not meant to be a fatality.

"Where there is evidence and credible efforts towards compliance, we will be flexible in terms of our judgment or assessment of a particular institution and I am happy to say all institutions (apart from Royal Bank) have shown seriousness and sincerity in terms of their desire to meet the new stipulated capital levels."

Copyright © 2013 The Herald. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections — or for permission to republish or make other authorized use of this material, click here.

AllAfrica publishes around 2,000 reports a day from more than 130 news organizations and over 200 other institutions and individuals, representing a diversity of positions on every topic. We publish news and views ranging from vigorous opponents of governments to government publications and spokespersons. Publishers named above each report are responsible for their own content, which AllAfrica does not have the legal right to edit or correct.

Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica. To address comments or complaints, please Contact us.