The Reserve Bank of Zimbabwe has banned loans to shareholders and directors of banks and is planning to amend the Banking Act to make it possible to prosecute shareholders, directors or senior managers who act negligently or fraudulently resulting in loss of money by depositors or failure of banking institutions.
This was said by the central bank acting governor Charity Dhliwayo in her monetary policy statement today.
She said the move had been taken because the level of insider loans was disturbing. Insider loans totalled $175.3 million as at 31 December 2013 and 67 percent of them, $117.4 million, were non- performing loans.
Previously, the Reserve Bank would net out insider loans from banks’ capital but this measure was not effective in deterring banks from extending insider loans.
The central bank had therefore introduced the following measures with immediate effect:
- No bank shall grant loans to insiders and related interests except where such credit is granted as part of the employees’ conditions of service and is available to other employees.
- Individuals and companies may, however, access loans from other banking institutions where they are not classified as insiders or related parties;
- All boards of banking institutions should review the existing levels of insider loans, ensure adequate provisioning and report insider loans to the Central Bank; and
- 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.
The central bank was also amending the Baking act as follows:
- Criminal Liability- While directors have common law duties to the company, the new provisions will extend a fiduciary duty of care to the customers. 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;
- Fit and Proper Assessment- The Reserve Bank will by 31 March, 2014 issue an enhanced fit-and proper person assessment framework clearly setting out the parameters for on-going fitness and probity assessments of directors and senior management;
- Bank Holding Companies- Companies that have control over banks or bank holding companies will now be required to be registered by the Reserve Bank; and
- Registration of Credit Reference Bureaus- In terms of the proposed law, regulations will be issued on the registration and supervision of credit reference bureaus.