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FOR the umpteenth time banks have again been caught with their pants down.
Recent developments at NMB Bank, CFX Bank, ZABG and POSB which saw hundreds of billions of dollars diverted to the illegal parallel market for the purchase of foreign currency before they could be legally issued to customers opened another Pandora’s box into the rampant indiscipline in the banking sector.
A fortnight ago, FBC Bank, NMB Bank, Kingdom Bank, CFX Bank and ZABG Bank were again in the dock on allegations of issuing fraudulent cheques — most of them being used to fund foreign currency deals and stock market trading.
The Reserve Bank of Zimbabwe (RBZ) intercepted cheques valued at $40 sextillion (40 000 000 000 000 000 000 000).
Again by the end of last week NMB Bank, CFX Bank and ZABG were caught on the wrong side of the fence and sadly they could not even deny it.
The ultimate loser has been the depositor while the national economy has also suffered heavily as a result.
But why are banks buying foreign currency on the black market, many depositors ask?
"Banks buying forex on the black market has been happening for quite some time and had now reached unprecedented levels. Everyone was aware that banks were buying forex on the market but were not convinced that this was now a cancer.
"Banks were trying to hedge themselves against the vagaries of inflation. Do not forget that banks also have monies of their own. No one can afford to hold on to the Zimbabwe dollar for more than an hour because of the exposure to the risk of losses, hence banks were dealing in the forex market to get stable currencies and preserve value," said one analyst.
But they crossed the line when they used local currency when it was not yet legal tender to buy forex. Greed overtook banking ethics.
The RBZ last week axed top management at NMB Bank, ZABG, CFX Bank and POSB for diverting vast sums of money onto the black market to buy forex.
Analysts argue that this will not solve the "real problem".
"The real problem here is inflation and it is part of any central bank’s core business the world over to address inflation. Everyone wants to get rid of the Zimbabwe dollar and preserve value in more stable currencies. Firing top management in the banks won’t stop banks from buying forex from the market in future. For now, yes but as long as there is runaway inflation banks will find a way of hedging.
"All they will do for now is to go under, read the situation and resurface at a later date with a vengeance. Flexibility and adaptability in the underworld of illegal foreign currency dealings is the order of the game. The forex market is like the Mafia in Italy."
Economists contend that whenever a currency of any country fluctuates between 20 and 30 percent a month for consecutive months, then that currency is not a stable currency, hence the need to fully dollarise an economy.
Undoubtedly, there is a need for the RBZ to decisively deal with the growing indiscipline in the banking sector in a bid to defend the value of the local unit and restore depositor confidence which is critical in the world of finance.
This mandate falls within the purview of the central bank which is legally empowered "to achieve and maintain the stability of the Zimbabwe dollar" under the Banking Act.
In addition, there are multiple laws that are tailor made to pre-empt any rogue players in this "sacred" sector.
These laws include but are not limited to the Reserve Bank of Zimbabwe Act 22:15, Banking Act 24:20, Exchange Control Act 22:05 and the National Payment Systems Act 24:23.
Expectations from depositors are simple and manageable: to access their hard-earned cash and to have money that buys.
Banks have, however, dampened these expectations by making the lives of ordinary depositors a living hell.
Fundamentally, it is crucial to establish for how long the banks have been playing games with depositors’ cash and what safeguards need to be put in place to minimise the recurrence of such unfortunate episodes.
The RBZ has set the tone for what the nation can expect following pronouncements by the apex bank’s Governor Dr Gideon Gono that in 2009 the central bank would stop its quasi-fiscal activities and focus on its core business.
And its core business includes overseeing the financial services sector, managing both the exchange and interest rate regimes, fighting inflation and stimulating economic growth.
Market watchers contend that this key institution had its plate full and had to stretch its capacities to superintend over the banks resulting in ineffectiveness.
Now the RBZ should simply bring the full force of the law and existing regulations to bear on the financial institutions.
Curiously, banks that have been caught with their hands in the till are all indigenous.
International banks such as Barclays Bank, Standard Chartered Bank, Stanbic Bank and MBCA Bank have not been implicated in the rot.
Could indigenisation and the liberalisation of the financial services sector in Zimbabwe be our own curse? Are the international banks in Zimbabwe operating in a different economic environment than the indigenous ones? Could it be a case of a different set of corporate governance rules governing the indigenous banks that they are caught in illicit and fraudulent activities all the time by the RBZ at the expense of the depositors? If any progress is being made in shearing off the abuses the market and depositors have endured so far, there is need to re-introduce in the local banks the same ethical and corporate governance models that the international banks have been using.
This is where the boards of directors come in. No wonder Dr Gono had initially come hard on both the non-executive and executive directors. It is them that should ensure that the same standards followed at Standard Bank are also found at CFX Bank.
Depositors deserve the right to know exactly what is happening in their banks. How institutions can carry out such flagrant and fraudulent practices at such a grand scale and not be caught by internal and external audits, boggles the mind.
Therefore, the respective company boards are culpable. Analysts believe that there is increased need to reinforce disclosures in order to promote transparency. In any case, these banks are obligated by the rules on the Zimbabwe Stock Exchange to do so.
Often what the ordinary depositors — often financially illiterate — and shareholders get at the end of financial periods are sexed up financial statements, where all the rot is swept under the carpet.
Where moral persuasion — when the central bank tries to politely urge compliance — fails to work, the apex bank justifiably should flex its muscles as it did last week. Going into the new week, questions that have been asked by many pertain to the fate of the parallel market.
When the central bank unveiled the set of new notes on Thursday the value of the local unit fell to $10 million per US dollar.
However, as the clampdown by the RBZ intensified, the value eased to $8 million per greenback.
Although it might be difficult to totally rein in the foreign currency parallel market deals as a result of the distortions in demand and supply, the scale of the movements of the deals and volumes can be minimised. Also through tracking the serial numbers on bank notes it will become easier for law enforcement agents to investigate and bring culprits to book.
In the interim it will become easier to pounce on those who have suspiciously large volumes of local currency. However, when depositors will be allowed to withdraw all of their monies in the banks it will become somewhat difficult to monitor the movements of bulk cash.
Scrolling down some of the functions of the RBZ’s Banking Licensing, Supervision and Surveillance, it becomes apparent that this unit must adequately flex its muscles.
Its objectives include:
l Enhance and maintain the safety and soundness of the financial system through effective risk-based supervision.
l Periodically review regulatory and supervisory regulations, policies and procedures in line with international best practice and the macroeconomic environment.
l Promote public confidence in the financial system by ensuring a consistent, objective and transparent regulatory and supervision process.
l Minimise moral hazard and supervisory forbearance through taking prompt supervisory action against weak and troubled financial institutions in order to protect the integrity of the financial system.
l Promote sound corporate governance practices and adoption of adequate risk management systems.
l Foster a culture of strict compliance with laws, rules, regulations, policies, procedures, guidelines and international best practice.
Recent developments at NMB Bank, CFX Bank, ZABG and POSB which saw hundreds of billions of dollars diverted to the illegal parallel market for the purchase of foreign currency before they could be legally issued to customers opened another Pandora’s box into the rampant indiscipline in the banking sector.
A fortnight ago, FBC Bank, NMB Bank, Kingdom Bank, CFX Bank and ZABG Bank were again in the dock on allegations of issuing fraudulent cheques — most of them being used to fund foreign currency deals and stock market trading.
The Reserve Bank of Zimbabwe (RBZ) intercepted cheques valued at $40 sextillion (40 000 000 000 000 000 000 000).
Again by the end of last week NMB Bank, CFX Bank and ZABG were caught on the wrong side of the fence and sadly they could not even deny it.
The ultimate loser has been the depositor while the national economy has also suffered heavily as a result.
But why are banks buying foreign currency on the black market, many depositors ask?
"Banks buying forex on the black market has been happening for quite some time and had now reached unprecedented levels. Everyone was aware that banks were buying forex on the market but were not convinced that this was now a cancer.
"Banks were trying to hedge themselves against the vagaries of inflation. Do not forget that banks also have monies of their own. No one can afford to hold on to the Zimbabwe dollar for more than an hour because of the exposure to the risk of losses, hence banks were dealing in the forex market to get stable currencies and preserve value," said one analyst.
But they crossed the line when they used local currency when it was not yet legal tender to buy forex. Greed overtook banking ethics.
The RBZ last week axed top management at NMB Bank, ZABG, CFX Bank and POSB for diverting vast sums of money onto the black market to buy forex.
Analysts argue that this will not solve the "real problem".
"The real problem here is inflation and it is part of any central bank’s core business the world over to address inflation. Everyone wants to get rid of the Zimbabwe dollar and preserve value in more stable currencies. Firing top management in the banks won’t stop banks from buying forex from the market in future. For now, yes but as long as there is runaway inflation banks will find a way of hedging.
"All they will do for now is to go under, read the situation and resurface at a later date with a vengeance. Flexibility and adaptability in the underworld of illegal foreign currency dealings is the order of the game. The forex market is like the Mafia in Italy."
Economists contend that whenever a currency of any country fluctuates between 20 and 30 percent a month for consecutive months, then that currency is not a stable currency, hence the need to fully dollarise an economy.
Undoubtedly, there is a need for the RBZ to decisively deal with the growing indiscipline in the banking sector in a bid to defend the value of the local unit and restore depositor confidence which is critical in the world of finance.
This mandate falls within the purview of the central bank which is legally empowered "to achieve and maintain the stability of the Zimbabwe dollar" under the Banking Act.
In addition, there are multiple laws that are tailor made to pre-empt any rogue players in this "sacred" sector.
These laws include but are not limited to the Reserve Bank of Zimbabwe Act 22:15, Banking Act 24:20, Exchange Control Act 22:05 and the National Payment Systems Act 24:23.
Expectations from depositors are simple and manageable: to access their hard-earned cash and to have money that buys.
Banks have, however, dampened these expectations by making the lives of ordinary depositors a living hell.
Fundamentally, it is crucial to establish for how long the banks have been playing games with depositors’ cash and what safeguards need to be put in place to minimise the recurrence of such unfortunate episodes.
The RBZ has set the tone for what the nation can expect following pronouncements by the apex bank’s Governor Dr Gideon Gono that in 2009 the central bank would stop its quasi-fiscal activities and focus on its core business.
And its core business includes overseeing the financial services sector, managing both the exchange and interest rate regimes, fighting inflation and stimulating economic growth.
Market watchers contend that this key institution had its plate full and had to stretch its capacities to superintend over the banks resulting in ineffectiveness.
Now the RBZ should simply bring the full force of the law and existing regulations to bear on the financial institutions.
Curiously, banks that have been caught with their hands in the till are all indigenous.
International banks such as Barclays Bank, Standard Chartered Bank, Stanbic Bank and MBCA Bank have not been implicated in the rot.
Could indigenisation and the liberalisation of the financial services sector in Zimbabwe be our own curse? Are the international banks in Zimbabwe operating in a different economic environment than the indigenous ones? Could it be a case of a different set of corporate governance rules governing the indigenous banks that they are caught in illicit and fraudulent activities all the time by the RBZ at the expense of the depositors? If any progress is being made in shearing off the abuses the market and depositors have endured so far, there is need to re-introduce in the local banks the same ethical and corporate governance models that the international banks have been using.
This is where the boards of directors come in. No wonder Dr Gono had initially come hard on both the non-executive and executive directors. It is them that should ensure that the same standards followed at Standard Bank are also found at CFX Bank.
Depositors deserve the right to know exactly what is happening in their banks. How institutions can carry out such flagrant and fraudulent practices at such a grand scale and not be caught by internal and external audits, boggles the mind.
Therefore, the respective company boards are culpable. Analysts believe that there is increased need to reinforce disclosures in order to promote transparency. In any case, these banks are obligated by the rules on the Zimbabwe Stock Exchange to do so.
Often what the ordinary depositors — often financially illiterate — and shareholders get at the end of financial periods are sexed up financial statements, where all the rot is swept under the carpet.
Where moral persuasion — when the central bank tries to politely urge compliance — fails to work, the apex bank justifiably should flex its muscles as it did last week. Going into the new week, questions that have been asked by many pertain to the fate of the parallel market.
When the central bank unveiled the set of new notes on Thursday the value of the local unit fell to $10 million per US dollar.
However, as the clampdown by the RBZ intensified, the value eased to $8 million per greenback.
Although it might be difficult to totally rein in the foreign currency parallel market deals as a result of the distortions in demand and supply, the scale of the movements of the deals and volumes can be minimised. Also through tracking the serial numbers on bank notes it will become easier for law enforcement agents to investigate and bring culprits to book.
In the interim it will become easier to pounce on those who have suspiciously large volumes of local currency. However, when depositors will be allowed to withdraw all of their monies in the banks it will become somewhat difficult to monitor the movements of bulk cash.
Scrolling down some of the functions of the RBZ’s Banking Licensing, Supervision and Surveillance, it becomes apparent that this unit must adequately flex its muscles.
Its objectives include:
l Enhance and maintain the safety and soundness of the financial system through effective risk-based supervision.
l Periodically review regulatory and supervisory regulations, policies and procedures in line with international best practice and the macroeconomic environment.
l Promote public confidence in the financial system by ensuring a consistent, objective and transparent regulatory and supervision process.
l Minimise moral hazard and supervisory forbearance through taking prompt supervisory action against weak and troubled financial institutions in order to protect the integrity of the financial system.
l Promote sound corporate governance practices and adoption of adequate risk management systems.
l Foster a culture of strict compliance with laws, rules, regulations, policies, procedures, guidelines and international best practice.
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