NYANGA South MP Supa Mandiwanzira has called for caution in dealing with former managers of failed financial institutions, arguing that poor performance of the banks in some cases may be interconnected with the worsening economic environment, contagion effect or lack of supervision by the central bank.
NATHAN GUMA
A heated debate has arisen in the National Assembly on whether former managers of failed banks should be allowed to play a significant role in the financial sector, amid waning confidence in the banking sector. Many legislators want executives who presided over the collapse of financial institutions to be banned from the financial sector.
At the turn of the century the banking and financial services sector experienced upheavals that resulted in some institutions being shut by the authorities, owing to poor corporate governance. Many depositors and investors lost their money.
Banks that have folded include Interfin Bank Limited (under liquidation), Royal Bank Limited (under final liquidation), AfroAsia Bank Limited (under liquidation), and Trust Bank Limited (under liquidation).
Little has been done to redress challenges brought by financial reforms that were put in place from 2013 to date, including high interest rates and liquidity constraints.
The dwindling confidence has been evident with mass cash withdrawals from banks before the introduction of the new Zimbabwe Gold (ZiG) currency on 5 April by new Reserve Bank governor John Mushayavanhu.
Mandiwanzira said there is a need to tread with caution as reasons of the bank failures have been interlinked with the economic environment.
“I think colleagues; honourable members here have all spoken in support of the proposed amendments to the Depositors Protection Act. I also stand here, Mr Speaker, sir, to support the motion. When we talk about depositors, we are talking about everybody who makes use of banking services,” Mandiwanzira said.
“So that includes individuals, that includes corporates, that includes burial societies, or whatever form of institutions or persons that utilize the services of banking institutions. I do not see anyone who would be opposed to more protection of the depositors’ funds in the event of bank failure.”
Mandiwanzira said keeping away former bank managers from the financial sector would be harsh as banks can fail due to the contagion effect. In a contagion, or domino effect within the financial system, if one bank fails, other banks will follow suit as they are all interconnected.
“Sometimes it is not actually the responsibility of bank executives in one particular bank. There is what happens in the banking sector that they call a contagion effect,” Mandiwanzira said.
“In most cases, that failure cannot be attributed to the management of those particular banks that have failed as a result of the contagion effect. You could attribute that to the environment, you can attribute that to lack of supervision by the regulator, in this particular case, the central bank.”
“So to propose some suggestions that are heard in the house, that anyone who has been working for a financial institution or a bank that has failed, any other opportunity in life to start another bank would be extreme to have a law to that effect. Because what that means is that we are not allowing people to try. I think anyone who has been in business understands that failure is an important aspect of business. You must fail in order to succeed.”
Mandiwanzira also the ban on the former managers is likely to scare people away from doing business, which is likely to weigh in on investment.
While the law should protect depositors, Mandiwanzira said it should also give people a second chance for rehabilitation.
As part of the amendments, Mandiwanzira said the Act should consider international banks that have been fleeing a deepening socio-economic crisis in Zimbabwe.
“The second point I needed to make with regard to the proposed amendments, is that we must also understand the state at which we are as a country, of our financial services sector,” he said.
“We are coming from a very difficult period where we have suffered the most extreme economic actions against our country, where international financial institutions have been penalised for doing business with Zimbabwe or Zimbabwean institutions.
“We have had international banks leave this country because they’ve been fined internationally for doing business in Zimbabwe. So we must make sure that as we amend the law, as we make proposals, we are also doing so in a manner that does not keep outside the financial, the banks that we must now invite to set up in Zimbabwe.”
For instance, in 2017, Barclays Bank Zimbabwe, a unit of the London Stock Exchange-listed Barclays Plc, sold its domestic asset to Malawian investors as it joined several companies that had departed at the height of turbulence between 2007 and 2008.
In April 2022, banking behemoth Standard Chartered Bank Zimbabwe announced that it would be pulling out of the country under its broad divesture strategy in selected emerging markets.
Mandiwanzira said the new amendment should consider luring international banks.
“Because we do need more banks, we do need more international banks, because we have to play our part in global trade. And that may mean that we must have Chinese banks set up here, we must have American banks set up here, and we must have South African, more South African banks set up here,” Mandiwanzira said.
“Just as we must have Zimbabwean banks like Metropolitan Bank, also set up in South Africa and China and other places of the world. So our laws, in my view, must also take into account that if the opposition is saying Zimbabwe is open for business, we do not make amendments that threaten the viability or the interest to come and invest in that business.”
