Reckless Zimbabwean bank executives face lengthy jail terms

Zimbabwean bank executives found to have been negligent in bank collapses will face a minimum of 10 years in jail when President Robert Mugabe signs amendments to the country’s banking laws.

Zimbabwe’s parliament and senate have already approved the banking sector regulations amendment bill, which now awaits Mugabe’s signature before implementation.

The country has been plagued by massive bank failures in the past few years with insider loans, lack of protection mechanisms for depositors and corporate governance violations being blamed for the bank failures. In the past three years, banks such as AfrAsia, Genesis and Allied Bank have folded, leaving depositors stranded.

A part of the bill says “whenever after an investigation, it is established that a bank is unable to repay some or all of its depositors by reason of recklessness, gross negligence, fraud or other criminal conduct, then every director or other person who was knowingly a party to the carrying on of the business of that banking institution recklessly… shall jointly and severally be liable for any loss suffered by the depositors or the banking institution.”

Foreign-owned banks – among them Nedbank’s MBCA, Standard Bank’s Stanbic Bank and Barclays Zimbabwe – have been the most stable, driving down loan default rates to below 5%. However, locally-owned banks have been struggling and battle to raise liquidity and access finances for lending. This situation has eaten into their balance sheets and led to the collapse of some banks.

“Without prejudice to any other criminal liability incurred, where following an investigation, it is established that the business of a banking institution was carried on recklessly, with gross negligence, fraudulently or in other illegal manner, every director of the banking institution or other person who was knowingly a party to the carrying on of the business in the manner aforesaid shall be guilty of an offence and liable to imprisonment for a minimum period of ten years,” reads another section of the bill.

Government officials have previously cautioned bank executives against flouting corporate governance in the industry. Zimbabwe is also forging ahead with crafting of a Code of Corporate Governance, which will seek to enforce a commitment to ethics in executives' management of their companies.

John Mangudya, governor of the Reserve Bank of Zimbabwe, was quoted by state media on Thursday as saying amendments to the banking sector regulations are “going to deal with all these delinquencies, whereby abusing people’s funds becomes a criminal” offence.

“What is left now is for it to be implemented. We have dealt with it decisively to improve proper governance in banking. We now have teeth to deal with the matter,” Mangudya told the state-owned Herald newspaper.

Source: Fin24