Failed banks haunt directors

THE Deposit Protection Corporation says there are sufficient legal instruments to facilitate successful prosecution of directors of failed banks for their roles in causing collapse of the institutions, which resulted in creditors and depositors losing hundreds of millions of dollars.

DPC has already issued summons against directors of three banks – Royal, Trust and Interfin – who are expected to appear before the courts.

Royal Bank was majority-owned by Jeff Mzwimbi and Simba Durajaji, Trust Bank by William Nyemba and Interfin by Farai Rwodzi, Jeremiah Tsodzai and Ray Njanike.

DPC chief executive John Chikura said some of the directors had already entered notice to defend.

Mr Chikura said the quasi-State deposit insurer had done everything within its capacity to make sure directors of failed banks have their day in court to answer to the charges on the transgressions.

Zimbabwe started experiencing collapse of banks en mass during the banking sector crisis of 2003, which to a good extent was caused by impropriety of directors.

"I think the laws are there. The Companies Act Section 318 clearly states what constitutes reckless trading, that a bank cannot trade with an insolvent company. So the laws are there, but what I do not know is whether the will is there (to prosecute culprits)," he said.

"We have applied the law and we hope that everybody along the queue will do their part. The next step is for the sued directors to go to court," Mr Chikura told The Sunday Mail Business on Friday.

There have previously been views that Zimbabwe does not have sufficient legal provisions for successful prosecution of directors of failed banks for their role in the bank failures.

Some argue that the laws that are supposed to ensure that the directors are prosecuted are vague.

Most cases of failed banks entailed instances of irregular financial conduct of some sort, which included issuance of insider loans and loans to related parties or insolvent borrowers, which in instances where nifty strategies crafted to embezzle funds.

DPC is in the process of liquidating a number of failed banks including Interfin, Genesis Investment Bank, Royal Bank, Tetrad Investment Bank, AfrAsia Bank and Trust Bank.

As at December 31 2013, total insider loans of failed banks in Zimbabwe's banking sector were US$175,3 million and of these; 66,97 percent or US$117,4 million were non-performing.

The bulk of the non-performing loans were from Interfin. Insiders at this failed bank bagged about US$100 million, which funded Interfin Holdings, its subsidiaries and shareholders.

It had become common phenomenon for directors of failed banks to start banks with very little and in some cases borrowed capital and lend themselves the money irregularly, but escape jail.

Directors who presided over failed banks lead stylish lives, leave in plush suburbs and drive posh vehicles.

Regulatory intervention

To prevent the recurrence of bank failures due to improper conduct of directors, the Reserve Bank of Zimbabwe introduced the new Banking Act, which came into effect in May last year, giving it more latitude to tighten bank supervision, monitoring and controlling individual or shareholder influence on banks.

The new legislation amends the Reserve Bank of Zimbabwe Act, Deposit Protection Corporation Act, Reserve Bank of Zimbabwe (Debt Assumption) Act, which was passed in 2017 and repeals the Troubled Financial Institutions (Resolution) regulations.

Part of provisions of the amended Banking Act now prohibit individuals or corporate bodies from holding more than 25 percent of voting shares in banks or their holding companies.

The new legal restrictions or conditions relating to shareholding thresholds in banks or bank holding entities seek to curtail risks associated with owner managed banks or institutions, which in the past resulted in prejudice of depositors or investors' funds.

The central bank has also tightened the screening process (probity) for bank directors.