LAWMAKERS have demanded the amendment of the Deposit Protection Act (DPA), including ensuring that former managers of failed banks away are kept away from financial institutions to protect depositors and investors, amid indications of plummeting confidence in the banking system.
NATHAN GUMA
This follows revelations that 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.
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.
Since then, confidence in the banking sector has waned, as indicated by 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.
The ZiG currency has started on a wrong foot, shedding value twice on the same day on the parallel market trading at ZiG21 against the United States dollar on 13 April, while the official rate is pegged at ZiG 13.56.
In Parliament, Emakhandeni-Luveve MP Discent Bajila said the new amendment should prevent directors of defunct banks from further participating in the economy.
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).
“Honourable [Tendai] Nyabani moved further to say such people who had their banks going defunct must be charged of murder but Honourable [Supa] Mandiwanzira warned us, saying in doing this thing, we must know that business such as banking is a result of trial and error,” Bajila said.
“I am saying this, to say some of the amendments to the Deposit Protection Act, we need to look into the fate of directors of defunct banks and not say they are banned forever from participating within the banking sector or economy in whatever way, as was proposed by Honourable [Edwin] Mushoriwa, supported by Honourable Nyabani. I am proposing that in dealing with this issue of directors of defunct banks, the amendment must set up some time during which they cannot participate as directors, further of banks, not a permanent ban. That is my proposal to that extent.”
Bajila said consumer representatives should also play a part in the Deposit Protection Corporation.
The corporation is a statutory body that provides protection to depositors in deposit-taking institutions licensed by the Reserve Bank of Zimbabwe under the Banking Act (Chapter 24:20), such as commercial banks, merchant banks, building societies, discount houses, finance houses, deposit-taking micro-finance institutions, People’s Own Savings Bank (POSB) and Infrastructure Development Bank of Zimbabwe (IDBZ).
In the event of bank failure, the DPC will compensate depositors part or all of their funds that were in the closed bank up to the maximum cover limit prevailing at the time of bank closure.
“If you check section 6 of the Act, it speaks to representatives of the banks. It speaks to somebody appointed by the minister. It speaks to representatives of the business, but there is no representation of the consumers out there. We might need to amend this section and add an institution such as the Consumer Council of Zimbabwe so that it can be included as part of the directorship of the Deposit Protection Corporation, and that it can represent the interests of the consumers.”
“At the end of the day, when banks collapse, it is the consumers who suffer the most. When banks collapse, it is us who will have taken our monies to the banks and we no longer find them.”
While the country currently has an Insolvency Act, it does not cover the liquidation of banks, leaving small depositors vulnerable in the event of closure of a bank.
Warren Park MP Shakespear Hamauswa said an amendment would be crucial to curb panic withdrawals by investors.
“If someone reads in the newspaper that this bank is likely to collapse, people will go and withdraw the cash and it will bring a negative impact to the economy, but if consumers are aware that nothing will happen to their investments as they are protected by law and they will get what they would have deposited, there will be no panic withdrawal of cash,” Hamauswa said.
“This is also another reason why we would want to see this law being amended, the current laws the minister of Finance is bringing to this House are comprehensive laws to make sure that we bring back the much-needed confidence.
“The second recommendation is to make sure that there are timely or continuous updates on the risk assessment. The DPC must be equipped with the necessary human resources to do risk assessment, continuously update the consumers and investors in terms of the performance of the banks who are actually members to the corporation.”
