Home » Governance » Governance Overhaul in New Banking Act

Finance and Economic Development Minister Patrick Chinamasa says he has found common ground with financial institutions with regards to the proposed amendments to the Banking Act.

This was after Minister Chinamasa, the Bankers Association of Zimbabwe, chief executives of financial institutions and university lecturers met last Friday to go through the proposed amendments to the Banking Act.

Generally the overhaul of the Banking Act would look at oversight, stress tests, and corporate governance.

The minister told The Herald Business that he had found common ground with the bankers over the proposals with particular emphasis on corporate governance.

Some of proposals include limitations on shareholding in banking institutions and controlling companies, responsibilities and conduct of directors and improved disclosures.

The amended Act will have a limitation on shareholding where no individual shall hold no more than 10 percent of the total nominal value. If it is a company, it should not hold shares exceeding 25 percent.

However, the Registrar may, by written notice to the shareholder and the banking institution or controlling company concerned, give permission for the shareholder to hold more shares in a banking institution or controlling company, if the Registrar is satisfied that the shareholding will not be contrary to the public interest or the interests of the banking institution concerned or its depositors or of the controlling company concerned.

The amendments would address the situation where the shareholder is both the manager and board member.

Amendments to the Banking Act come in the wake of a number of corporate failures in the financial sector largely blamed on corporate governance deficiencies.

More than 12 financial institutions collapsed during the 2003 to 2004 banking sector crisis with abuse of depositors funds a common thread in each of the corporate failures. Most of the abusers were owner managers of the banks.

Recently, financial institutions such as Renaissance Merchant Bank and Interfin failed because of reasons mainly attributed to corporate governance deficiencies involving insider loans and related part lending and transactions.

According to the Reserve Bank of Zimbabwe, directors and senior managers of financial institutions accounted for 16 percent of the $171 million non-performing loans, a clear indication of relaxed corporate governance systems.

Other proposed new section insertions include that directors possess and maintain the knowledge and skill that may reasonably be expected of a person holding a similar appointment. Directors will also be expected to disclose their assets, business activities and financial and proprietary interests and those of their close relatives.

In terms of the compliance function the board of every banking institution and controlling company shall establish, as part of a risk management framework, an independent committee or department.

Banks will also be expected to provide new account holders with charges for maintaining the account and the interest it will pay on funds.

Minister Chinamasa said his office would draft the principles of legislation which he would then present to Cabinet for approval.

Source : The Herald