Editorial Comment: Time to cleanse financial services sector
ZIMBABWE’s financial sector is somewhat safe and sound, but there are a few banks which are struggling to survive and others which are errant, according to the Reserve Bank of Zimbabwe.This revelation was made by the RBZ Governor Dr John Mangudya in the Monetary Policy statement released at the end of last month. Dr Mangudya said four institutions are battling to survive.
The Governor provided some insights into the banking sector. He said that there are some errant banks, some which lack critical mass in terms of revenue and others which have adopted a deliberate strategy to clean up bad loan books through provisioning.
Dr Mangudya said the RBZ is working earnestly to mobilise funding to enhance liquidity within the economy.
The resources being mobilised would be used transparently and productively for the establishment and promotion of RBZ’s lender of last resort function.
Such funds, Dr Mangudya said, would not be available for use by errant banks to finance their nefarious non-core activities.
But why should we waste time to keep afloat “errant banks”, which finance “nefarious activities”? A financial system is central to a nation’s economic growth, development and well-being. Banks serve a mediation role among the transacting public. Once a bank has become “errant” it then ceases to be relevant as a bank.
The RBZ should therefore wield the axe on the “errant” banks. Such action should include closing them altogether. We should not pamper and protect the wayward behaviour especially in the banking system as this has potential to kill public confidence in the financial system. We are creating a time bomb.
Once the central bank identifies the errant banks, which are financing despicable activities, it should flush them out before they begin to compromise the financial system.
This could be one of the reasons why millions of dollars are not finding their way into the financial system, which is bad for the economy.
The Governor made another startling revelation, which calls for decisive action; that only 12 banks recorded profits for the period ended June 30, 2014.
The losses recorded by a few banking institutions are attributed to high levels of non-performing loans, lack of critical mass in terms of revenue to cover high operating expenses and deliberate strategy by some banks to clean up bad loan books through provisioning.
If the majority of non-performing loans are carried by a few loss making banks, is this not a clear indication that the banks are not good for our fragile economy?
More importantly, if the banks lack critical mass in terms of revenue to cover high operating expenses, are we not sacrificing depositors’ funds by keeping such institutions in the financial services sector?
We are of the view that if a bank does not have the required revenue stamina it must either downgrade to a microfinance institution or be closed forthwith.
We have for a long time protected delinquent and unscrupulous business persons under the guise of indigenisation. If they are failing to abide by the principles set out in the Banking Act, then they must face the music instead of sacrificing depositors’ funds.
Most of these banks are being patronised by low income earners and it would be a travesty of justice if the public are to lose their hard earned money when these unscrupulous banks sink.
We have several examples where many people lost savings after delinquent banks; Royal Bank, Trust Bank, Century and many others went under and we should not allow this to happen again.
RBZ’s thrust must be to protect the depositors and not the devious bank owners. Decisive action must be taken.
Let us cleanse our financial services sector by weeding out the malcontents.