RBZ to tighten bank supervision

RBZ to tighten  bank supervision
John Mangudya

RBZ governor, John Mangudya

THE Reserve Bank of Zimbabwe (RBZ) is contemplating imposing a more stringent supervision regime on the financial services sector this year as it seeks to restore public confidence severely eroded by the collapse of several banks in the past few years.
The move, said central bank governor, John Mangudya, is also aimed at building strong and resilient banks, a situation which would transform Zimbabwe’s frail economy.
“To transform our economy, we need to have solid and stronger local financial institutions,” said Mangudya, adding that the central bank would “deepen the supervision of banks to ensure that they are stable, sound and safe”.
“That is very important because this will create a foundation for economic transformation. Our war cry should be economic transformation. Closely supervised financial institutions would also exhibit good corporate governance,” he said.
He said the RBZ would timeously identify key risks and vulnerabilities and also ensure that failed banks exited the market with minimal disruptions to the overall functioning of the sector.
An affected bank has the potential to threaten the stability of the financial sector as a whole.
The country has experienced over 20 cases of bank failures since 2004 due to serious challenges ranging from poor corporate governance practices, deep rooted risk management deficiencies and chronic liquidity problems.
There has been growing concern over the increasing number of failed banks considering the key role that the financial sector plays in the development of the economy.
The banking sector is currently constituted of 18 operating banking institutions — 13 commercial banks, four building societies and one savings bank. A merchant bank, Tetrad Bank, is currently under judicial management.
In 1980, there were only five banking institutions in the sector but due to financial reforms in the 1990s, more players entered the market, which was previously dominated by a few large foreign-owned banks.
Interestingly, there were 40 players in the banking sector in 2002. Though the expansion was a welcome development, some of these have since failed.
After wobbling for close to two years, AfrAsia Bank Zimbabwe became the last bank to collapse when it ceased its banking operations in February last year after contravening several banking regulations, including failing to pay depositors their money on demand.
The huge cost of bank failures is the loss of confidence in the entire banking system. Once this trust is lost, it is difficult to regain.
As a result, Mangudya said Zimbabwe was now a “highly cash economy” with at least 80 percent of Zimbabweans moving with their cash.
This made it a speculative economy, he said.
“In Zimbabwe, we need to use plastic money,” said Mangudya.
“We have more than 80 percent of people moving with their cash. When they get paid, that same day or the next day, they go to the bank and withdraw their money and move with it.
“That’s not a normal economy. In line with the best practice, a normal economy uses plastic money. In this case, the opposite is true where at most 20 percent of the banking population use plastic money. So this economy is a highly cash economy.
“We need to move away from that. In the next five years, we expect 80 percent of the banking population to use plastic money in line with best practice,” he said.
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