RBZ warns banks over forex abuse

The Reserve Bank of Zimbabwe (RBZ) has warned it will take punitive action against banks flouting exchange control regulations after noting rampant abuse of nostro (domestic) foreign currency accounts (FCAs). It was also noted some banks were taking too long to credit foreign currency from proceeds of the sale of tobacco into farmers' nostro FCAs under circumstances the apex bank wanted to understand.

The RBZ said that banking institutions that may be found to have violated the new and existing exchange control regulations and policies risk strong sanctions that include possible withdrawal of their dealer's licence.

This comes only days after the central bank ditched its parity policy on the US dollar to RTGS dollar exchange rate with regards procurement or allocation of foreign currency for the importation of fuel into the country.

The new policy also now dictates that oil marketing companies, which used to get foreign currency from the RBZ at the 1 to 1 parity exchange rate policy, will now use the interbank market to obtain the hard currency.

RBZ's warning comes after the bank said this week it had begun draw downs on a US$500 million external line of credit to support efficient functioning of the interbank forex market, amid crunching shortages of hard currency.

In an exchange control directive RU80/2019 on Wednesday the RBZ said it had noted with concern that banks were in the habit of abusing nostro (domestic) FCA accounts to circumvent standing rules on foreign currency utilisation.

The statement by acting exchange control director Obvious Runesu, follows an earlier directive on Monday on the latest arrangements for fuel procurement and entails further guidance on utilisation of foreign currency.

"Exchange control has noted with concern the rampant abuse of nostro FCA (domestic) by market players with the objective of evading existing exchange control policies governing treatment and utilisation of foreign currency.

"In this regard, authorised (foreign currency) dealers are advised that transfer of funds from nostro FCA (Exports) to any other nosto FCA, including nostro FCA (Domestic) of the same company, is not permitted," Mr Runesu said.

"In cases where the exporter intends to augment export proceeds with foreign currency holdings in other nostro FCAs, funds in the nostro FCA (exports) should be transferred direct to supplier of goods or services," he added.

The RBZ has thus directed all banks to ensure that all domestic FCA accounts of their clients are properly designated while the banks shall be obligated to submit a schedule of domestic FCAs by 1 pm every Monday.

"Authorised dealers are advised that failure to comply with the regulations, as contained in the exchange control directive (RU80/2019) and other regulations, constitutes a violation of (RBZ) exchange control provisions.

"Incorrect or false coding and misleading declarations are punishable offense. Authorised dealers and market players who shall be found in violation of exchange control regulations and policies, shall be penalised in terms of Section 5 (1) of the exchange control Act (Chapter 22:05) and Section 37 (i), (ii) and (iii) of the exchange control regulations, Statutory Instrument 109 of 1996, which call for, among other penalties, the withdrawal of authorised dealers licence," he said.

The apex bank, amid further concerns over potential abuse of clients' funds, said it had noted with concern that banks were taking too long to credit farmers' accounts with their foreign currency entitlements from tobacco sales.

The bank thus ordered banks to credit the tobacco farmers' accounts with their forex entitlements by end of this month. Banks have also been given guidance on the utilisation of scarce foreign currency, which shall entail according priority to exporters who import raw materials or machinery to support production and generate more exports.

Non-exporting importers of essential raw materials such as basic foods stuffs and fuel, health and agro-chemical products, granted these goods are not readily available in the country, will also receive high priority. Further, repayments of offshore lines of credit for productive activities, payments for services not available in Zimbabwe, disinvestments from the Zimbabwe Stock Exchange and imports of packaging material not available locally, shall also be prioritised.