THE move to open the Zimbabwe Allied Banking Group (ZABG) looks set to cause a legal furore because the inclusion of three financial institutions — Barbican Bank, R
oyal Bank and Trust Bank — was done arbitrarily in breach of regulations.
The Reserve Bank of Zimbabwe disregarded the provisions of the Troubled Financial Institutions (Resolution) Act.
Former directors and shareholders complain that the central bank lynched its own laws in its hurry to open the ZABG.
Among crucial issues disregarded by the RBZ is the provision to seek confirmation from a High Court judge before amalgamating the banks.
There was no effort to inform former directors of the move to take over their banks as required by some sections of the Troubled Financial Institutions (Resolution) Act. The central bank was also supposed to issue a proper statement to announce the inclusion of the three banks in the ZABG.
Analysts said the central bank acted arbitrarily because it had become too powerful and no longer accountable to anyone. They said this type of decision by the central bank was unprecedented.
In a statement last week, the RBZ announced that Barbican, Royal and Trust Bank would become the first financial institutions to be swallowed into ZABG.
It said Intermarket had been left out because of its ongoing merger talks with an unnamed financial institution while Time Bank had a pending court case with the central bank.
Also not explained was whether such criteria had been arrived at in consultation with shareholders and former directors and ordinary depositors.
Former bank owners and shareholders said they were not informed of the take-over of their banks.
It is this huge discretionary power by the central bank that has created resentment in the financial sector amid allegations that the RBZ was getting too powerful.
The analysts said the RBZ had transformed itself from a mere regulatory authority to a player and referee in the operations of the financial sector.
This has seen the bank spreading its tentacles into all facets of the sector. They said this was not good for corporate governance.
Through amendments of standing regulations and/or creation of new ones, they said, the RBZ has now put a dead man’s grip on the financial sector.
Over the past 12 months several laws have been passed to give the RBZ more sweeping powers. The Financial Laws Amendment Act passed last year gives the Reserve Bank of Zimbabwe powers to be the licensing and regulatory authority of asset managers, unit trusts, microfinance and money-lending companies.
This is in addition to the Troubled Financial Institutions (Resolution) Act, which gives it the power to take over collapsed banks without due compensation to shareholders and former directors.
The RBZ’s influence has also spilled into fiscal policy issues, rendering the Ministry of Finance and Economic Development almost irrelevant.
In January last year the central bank also took over the registration of banks, a role previously reserved for the Ministry of Finance. The RBZ is now the registrar, supervisor and controller of banks.
The analysts say the central bank has arrogated to itself too much power and is diverting from its core business of regulating the financial services sector and defining the monetary policy of the country.
It has also gone into bureau de change business of buying foreign currency directly from the market. It announced that it would go directly into the market to buy foreign currency under its Homelink initiative. A company in which the RBZ has a majority shareholding has already been formed with Gono as the chairman.
There is also a prospect of the central bank venturing into retail banking through the “troubled” Zimbabwe Allied Banking Group (ZABG) where it has a large shareholding together with the government.
Analysts say control on the banking sector has also been widened to include human resources issues. The RBZ now wants to be directly consulted in the appointment of key staff in the banking sector.
According to the new plan, the central bank will scrutinise the CVs of the top three personnel in each department. The RBZ will also be involved in the appointment of chief executives and senior management of banks.
This week Gono promised to tackle virtually every sector, including parastatals which he accused of gross inefficiency.
He will also intervene in the governance of local authorities. The two sectors were allocated $10 trillion for their turnaround plans.
All this, analysts say, has made the RBZ too dominant whilst its venture into the direct purchase of forex and entry into the retail banking through ZABG compromise corporate governance.
Bankers have questioned the powers and impartiality of the RBZ as a monetary authority.
Dr Alex Magaisa, a law lecturer at the University of Nottingham in the UK and a regular columnist of the Zimbabwe Independent, said the RBZ was now too powerful.
He said the bank was getting too involved in the affairs of individual banks and might expose itself to legal liability if something went wrong.
“The RBZ is becoming too powerful. More important, however, is that by getting actively involved in individual institutions’ affairs, the RBZ might expose itself to legal liability in case something goes wrong as a result of their interventions,” said Magaisa.
“The best scenario is that an independent supervisory authority should be created so that it concentrates solely on the supervision of financial markets generally and leaves the central bank to focus on the key monetary policy duties.
He said while there was nothing particularly wrong in the supervisor being the authority responsible for registration, the question was whether the RBZ would behave any differently from the ministry.
This means that the central bank now has unilateral powers to decide on the fate of any bank without any alternative for the banks to challenge its actions. The issue in which the troubled Time Bank has dragged the RBZ to court is a case in point. There are now serious doubts about the impartiality of RBZ in its future dealings with Time Bank after the case has been concluded.
Its effort to control the recruitment policy of banks is also open to abuse by the central bank.
“The idea of playing a role in the recruitment obviously makes the chosen ones indebted to the governor and this might compromise both the RBZ’s supervisory role and the executive’s independence which is very important in corporate governance,” Magaisa said.
Others said the recent move by the reserve bank to open MTAs under the Homelink brand did not augur well for the sector. They said the central bank was usurping roles initially meant for the private sector. The Reserve Bank is now a full-time operator of several foreign currency exchange outlet around the country.
Their Homelink outlets are already competing directly with private banks and other money transfer agencies. To consolidate its grip on the foreign currency trading the RBZ has since formed Homelink Pvt (Ltd) in which the bank would have majority shareholders.
“Playing the leading role in the buying of foreign currency from the public, the Reserve Bank is transcending its actual role. What then becomes the role of private banks,” asked an economist with a local bank. “The playing field in the purchase of foreign currency is no longer level. What guarantee do we have that their policies would be fair. It is now the referee and the player in the financial sector,” he said.
There are also reservations that the government’s move to venture into retail banking through the ZABG can also compromise the central bank’s role. They say it is against basic corporate governance for the central bank to operate a retail bank as what is happening with ZABG. This means that the RBZ is literally jostling for customers and business with established banks.