TAURAI MANGUDHLA
The Deposit Protection Corporation (DPC) is working on a draft Banking Insolvency Framework to close the deficiencies in the current legislation which do not give rise to speedy resolution of failed or failing institutions.
DPC chief executive Vusi Vuma told the organisation’s maiden annual general meeting in Harare on Tuesday that the institution had hit brickwalls when taking legal action against directors of failed banking institutions.
The legal processes, Vuma said, were delayed and complicated by existing legal framework deficiencies.
“The challenges we have faced so far is that we have a defective bank resolution framework. There are so many material deficiencies in the current legislation which does not give rise to speedy resolution of failed or failing institutions,” Vuma said.
“You are aware that before banking amendments, if you were to sue anyparties to blame you would have to use the Companies Act but then with this Act you really have to prove the directors were grossly negligent… and as you are aware it is not easy to prove
gross negligence.”
The draft Banking Insolvency Framework will close legal gaps in legislation, Vuma said.
“Currently they are also working on the Companies Act which will exclude resolution of banks so we will be compelled to come up with our own legal framework to ensure we cover that gap,” Vuma said.
Over half a dozen banks have been closed since 2003. The closed banks had common
ailments; concentrated shareholding, corporate governance weaknesses and insider non-performing loans akin to a declaration of a dividend to shareholders using depositors’ funds.
Vuma said the DPC is waiting for court proceedings to conclude the compensation of Interfin depositors.
“We cannot give time limits because what happens especially on liquidation is you recover the assets, you sell them and then you prepare distribution accounts which are then approved by the Master and then you pay the dividend so I cannot give time,” Vuma said.
Meanwhile, DPC chair Agmos Moyo told the AGM that nostro accounts do not have deposit cover.
“Obviously the question speaks more to policy, which we normally receive from our shareholder. To answer directly, what happened when there was that conversion on the 22nd of February, all liabilities became RTGS dollars and therefore it means that we are settling those claims in the correct currency in terms of the Statutory Instrument,”
Moyo said.
“We are aware that there are still nostro accounts denominated in US dollars, we did approach the Reserve Bank and the shareholder as to whether they should have a separate cover for the current nostro accounts in the event of a bank failure, but the current policy
directive is that they be quarantined and they are therefore not covered,” he added.
Moyo said as per the directive of the Ministry of Finance, it follows that the DPC is not levying any contributions in respect of the nostro accounts which are denominated in US dollars.
“We appreciate all accounts must be covered so that there is confidence in both the RTGS accounts and also the nostro accounts,” Moyo added.
In an update of operations, Vuma said DPC’s target fund using international best practice is 2 percent of total deposits which is about ZWL$223m based on 2018 numbers, but at the close of 2018 the cover was ZWL$59m.
DPC’s cover level is currently ZWL$1,000 per depositor type per contributory banking institution and ZWL$250 for deposit taking microfinance institution depositors.
DPC said total recoveries for the six banks under liquidation excluding Tetrad increased by 64 percent to ZWL$49,3m as at December 31 2018 from ZWL$30m in December 2017.
The corporation adopted an aggressive recovery strategy during the period under review whereby in addition to cash, it started accepting payment by way of treasury bills and immovable assets.
Cumulative dividend from recoveries paid out by DPC increased by 140 percent to ZWL$28,6 million as at December 31 2018 from ZWL$8,5m in December 2017 (excluding Genesis bank).
Total liabilities of banking institutions under liquidation were ZWL$284m against total assets of ZWL$93,4m as at December 31 2018 leaving a gap of ZWL$190,6 million.
