GOVERNMENT plans to limit individual and corporate bodies’ shareholding by 5% and 25% respectively in any banking institution as part of instilling corporate governance and responsibility in the sector.
BY NDAMU SANDU
Individuals and corporates can only exceed the limit with approval from the Registrar of Banks.
The limit on shareholding is part of a raft of measures contained in the Banking Amendment Bill that is set to make a major surgery on the current Banking Act (Chapter 24:20).
Finance minister, Tendai Biti is spearheading reforms of the banking sector.
Section 15A (2) empowers the Registrar, by written notice to the shareholder and the banking institution or controlling company if satisfied that “the shareholding would not be contrary to the public interest or the interest of the banking institution concerned or its depositors or of the controlling company concerned as the case may be.”
A new section, 15F, will compel every banking institution and registered controlling company to take such steps, “as are necessary to ensure that its available shares, or such proportions of its available shares as the Registrar may approve, are listed on the official list of a securities exchange”.
The amendments also seek to hold liable directors and principal officers if the bank were to collapse.
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A new section, 20A, says each director and principal officer of a banking institution or controlling company owes a fiduciary duty and skill to the institution and in particular has to “act bona fide for the benefit of the institution or company and for the benefit of its depositors”.
A director or principal officer has “to avoid any conflict between his or her personal interests and the interests of the institution or company and its depositors”, among others.
The reforms, though part of the international trend, are also intended to curb the surge in corporate abuse of over a dozen financial institutions as a number of indigenous-owned ones have either been closed or put under curatorship since Gideon Gono took over the reins as RBZ governor in 2003.
The ailments have been the same — concentrated shareholding, weak corporate governance, owner-managed or controlled and insider loans, which all turned out to be non-performing.
There was also the siphoning of depositors’ funds through related party loans to the main shareholders and their associates “akin to a declaration of dividends by shareholders from depositors’ funds”.
Clause 18 of the Bill introduces a new section, Section 31A, that requires all banks to have their financial state assessed or rated by a credit assessment institution approved by the central bank. The rating is done at least once a year.
The cost of the rating or assessment would be borne by the institution concerned and the central bank may publish a summary of the results of any assessment or rating.
credit rating for all banks
In his monetary policy statement in January, Gideon Gono said banks would undergo credit ratings.
The move, a first for local banks, is set to reduce the cost of money on lines of credit from international financial institutions badly needed due to the liquidity constraints obtaining on the local market.
Gono said that as provided in the country’s regulation, banking institutions should subject themselves to annual external credit rating assessments by credit rating agencies accredited by the Reserve Bank.
“This is something we would like to see and it can happen next year.”
The world’s top three credit rating agencies include Standard & Poor’s, Moody’s and Fitch.
