Finance minister Mthuli Ncube has prescribed that loans to insiders should not be more than ZWL$50,000 and financial institutions are compelled to have liquid assets of not less than 30% of the liabilities to the public in sweeping reforms that fool proof the sector from bank failures.
The raft of measures comes at a time the banking sector is back on its feet following the collapse of financial institutions in the period 2004 to 2009 as monetary authorities wielded the axe to remove the “sick men” of the industry.
Over a dozen banks and asset managers were closed since the turn of the new millennium.
The collapsed banks had the same ailment— concentrated shareholding, high insider loans which tends to be nonperforming and abuse of depositors’ funds akin to what monetary authorities equate to a declaration of dividend to shareholders using depositors’ funds.
Banks that were swept aside during the banking storm include Ncube’s Barbican, Royal, Trust, Genesis and Interfin, among others.
The sweeping changes are contained in a Statutory Instrument 265 of 2020 gazetted last week.
A principal shareholder has been defined as any person who owns or controls more than five per centum of the shares or voting stock of a banking institution.
Before the amendment, a principal shareholder meant any person who owns or controls more than twenty per centum of the shares or voting stock.
Every registered commercial bank, accepting house and finance house is supposed to maintain a minimum holding of the liquid assets of not less than 30% of the liabilities to the public of its offices and branches in Zimbabwe.
In the past they were supposed to hold not less than 10% of the liquid assets.
Ncube has also tightened lending to insiders.
The amendments repealed provision which proscribed banks from knowingly extend any loan or advance to or for the benefit of any insider or any relative of such insider if the aggregate of the new loan or advance added to the total of any other loans or advances given to the insider and any of the relatives of the insider will exceed twenty-five per centum of the institution’s capital base and if the aggregate of the new loan or advance added to the total of any other loans or advances given to the insider and any of the relatives of the insider will exceed five per centum of the institution’s capital base.
Under the new regulations no banking institution shall knowingly extend any loan or advance to or for the benefit of any insider or any close relative or related interest of such insider if the aggregate of the new loan or advance added to the total of any other loans or advances given to the insider and any of the close relatives of the insider will exceed ten per centum of the institution’s paid-up equity capital.
They are also prohibited from extending loans if the aggregate of all loans, advances or extensions of credit, including any proposed new extension of credit, to all insiders and their related interests or close relatives, exceeds 100% of the banking institution’s paidup equity capital, unless the loan, advance or extension of credit is made on substantially, the same terms including eligibility, interest rates and collateral as those prevailing at the time for comparable transactions by the banking institution with other persons that are not insiders; and if any other loan to that person is nonperforming.
“For the purposes of section 35(3) of the Act, the maximum amount of credit that can be granted to an insider without the conditions under section 35(3)(a) to (d) shall be fifty thousand dollars or 1% of the institution’s minimum capital, whichever is the lower,” the amendments said.
“No banking institution shall extend loans or advances amounting to more than ten percent of its minimum capital to or for the benefit of any partnership of which one or more insiders or any close relative or related interest of such insiders are partners.
The total amount of credit extended by a banking institution to a partnership shall be deemed to be extended to any member of the Mthuli Ncube partnership.”