‘RBZ too lenient’

Oliver Kazunga Senior Business Reporter
THE Reserve Bank of Zimbabwe should immediately withdraw operating licences for banks that show signs of trouble before they mop up depositors’ funds, the Deposit Protection Corporation (DPC) has said.

John Chikura, DPC chief executive officer, told Business Chronicle in Bulawayo yesterday his organisation was concerned at the time the central bank takes to withdraw operating licences for troubled banks.

“The central bank shouldn’t allow a bank to deteriorate to a point it becomes a shell (with nothing inside) before an operating licence is withdrawn in order to protect depositors’ funds,” he said.

“As soon as the bank starts showing signs of trouble, the supervisor (central bank) should immediately withdraw the operating licence so that depositors’ funds are protected as well as reducing the burden that the DPC has to carry.

“There’s a need to protect depositors’ funds. It’s not good for banks to use depositors’ funds to a point the bank ends up having no resources to pay the depositors.”

The deposit protection scheme was introduced in Zimbabwe in 2003 with a view to ensuring that depositors are reimbursed part or all of their deposits in the unlikely event of a bank failure.

Earlier on, Chikura told delegates at a one-day workshop that deposit protection has benefits that accrue to depositors and banks through enhancement of financial stability.

“By promoting the deposits, a Deposit Protection Scheme (DPS) fosters confidence in the banking system and prevents self-fulfilling panics or bank runs thereby reducing the likelihood of contagion and cascading defaults.

“A DPS reduces financial uncertainty thereby promoting financial intermediation and enhancing economic and financial stability to depositors,” he said.

“DPS helps to minimise losses to small depositors (the majority) who are most affected by bank closures, and lack resources and skills to monitor contributory institutions.”

Chikura said when a bank fails, a deposit insurer should inform depositors on how and when reimbursement will be made.

Banks have a legal obligation to inform depositors regarding the nature and extent of coverage, he added.

At the moment, the DPC insurance cover per individual account is pegged at $500.

Based on this cover rate, Chikura said 88.5 percent or about 1,252,949 out of about 1,417,785 depositors were covered in full.

“As at December 31, 2014, the size of the Deposit Protection Fund was $7.1 million after providing for banks that collapsed since 2014. The current exposure levels call for a robust deposit insurance fund capable of instilling confidence in the banking sector,” he said.

Since its inception, the DPC has compensated depositors of nine failed banking institutions, which were subjected to liquidation.

Among them is Century Discount House, Sagit Finance House, Genesis Investment Bank, Royal Bank, Trust Bank, Interfin, Allied and AfrAsia.

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