CRIMINAL and civil liabilities will be introduced on directors and senior managers found to have acted fraudulently and negligently on the collapse of banking institutions, the central bank said last week as it moves to root out indiscipline in the sector.
Presenting her maiden monetary policy statement last week, Reserve Bank of Zimbabwe (RBZ) acting governor, Charity Dhliwayo said amendments to the Banking Act [Chapter 24:20] have been proposed with a view to strengthening the regulatory environment.
Dhliwayo said RBZ and the ministry of Finance and Economic Development were working on reviewing the regulatory framework applicable to banking institutions to ensure effectiveness and alignment to international best practice.
"The new provisions will also seek to introduce criminal as well as civil liability of any shareholder, director or senior manager of a banking institution, who will be found to have acted negligently or fraudulently, resulting in loss of money by depositors or failure of a banking institution," Dhliwayo said.
"While directors have common law duties to the company, the new provisions will extend a fiduciary duty of care to the customers."
The measure comes at a time when over 10 institutions -- all of them locally owned -- were either closed or placed under curatorship in the past decade.
The ailments have been the same -- concentrated shareholding, weak corporate governance, owner managed or controlled and insider loans which all turned out to be non-performing.
There was also the siphoning of depositors' funds through related party loans to the main shareholders and their associates "akin to a declaration of dividends by shareholders from depositor' funds".
However, directors and managers have gone scot free, raising fears that stemming abuse of depositors' funds would be a tall order.
Dhliwayo said RBZ would issue an enhanced person assessment framework clearly setting out the parameters for on-going fitness and probity assessments of directors and senior management by March 31.
RBZ approves senior managers and directors before their appointment by banking institutions.
To curtail the increase in insider non-performing loans, Dhliwayo ordered banks to stop granting loans to insiders and related interests unless credit is granted as part of the employees' conditions of service and is available to other employees.
The move comes amid revelations that 66,97% (US$117,4 million) of insiders loans in the banking sector as at December 31 were non-performing, that is, scheduled payments for at least 90 days had not been made.
Total insider loans in the banking sector, including Interfin, amounted to US$175,3 million.
Individuals and companies may, however, access loans from other banking institutions where they are not classified as insiders or related parties.
Dhliwayo said existing insider loans should not be renewed or rolled over and banking institutions should take measures to ensure repayments are made in terms of the facility.