Zim banks face huge crisis

Scramble as mining giant RioZim fails to settle loans

Banking executives are in a panic after revelations that several Zimbabwean banks, already suffering liquidity problems, have been exposed as a result of the failure by mining giant Rio-Zim to settle loans of $50-million.

Many banking executives who spoke to the Sunday Times expressed fears that reports of RioZim's financial crisis would trigger depositors into stampede withdrawals, something which could collapse the country's already struggling financial institutions.

Official documents on the state of the banking sector, which were seen by the Sunday Times, show it is still experiencing serious problems, including liquidity, non-performing loans and poor corporate governance vulnerabilities. Some banks are also failing to pay their statutory reserves.

Finance Minister Tendai Biti said the Reserve Bank of Zimbabwe would soon audit all banks' statutory capital requirements, after a three-week probe into ReNaissance Merchant Bank's operations had exposed a $16.5-million financial gap.

The International Monetary Fund recently said of Zimbabwe "a sizeable fiscal financing gap projected for 2011, an inefficient composition of public expenditure, persistent financial sector vulnerabilities, and weaknesses in the business climate, including the recently announced fast-track indigenisation of the mining sector, weigh heavily on growth and poverty reduction prospects".

Bankers interviewed on Friday said the RioZim crisis has hit the banking sector badly, raising the spectre of the 2004 bank failures and closures. A number of banks were closed in 2004 due to liquidity problems and mismanagement.

"The RioZim situation has shaken the banking sector. The media is fuelling the crisis by publishing reports which will spring depositors into a panic mood and lead to a flight of deposits," a senior official said.

Another banking executive said: "There is a problem, if we are not careful we may very soon see a run on the banks - and this will create upheavals in the financial services sector and the economy similar to those of 2004".

RioZim Ltd, previously Rio Tinto Zimbabwe Limited, is a Zimbabwe-based mining company. It is engaged in the production of gold and coal as well as refining of nickel and copper.

The company has three major operations, Renco Gold Mine in Masvingo in the southeast of Zimbabwe, Empress Nickel Refinery in Kadoma, a producer of coal in central Zimbabwe, and a 50% stake in Sengwa Colliery in Gokwe North. It has also invested in diamond mining, through Murowa Mine, located in the southeast, in which RioZim holds a 22% stake.

In 2009, RioZim produced 708kg of gold, 5002 tons of nickel and 3842 tons of copper, and Murowa Mine provided 162011 carats of rough diamonds. RioZim Ltd separated from Rio Tinto Plc in 2004.

Reports in a leading business weekly said on Friday more than half a dozen banks are exposed through RioZim's debt. The Sunday Times saw documents showing a number of banks were exposed.

The banks in trouble over the Rio Zim crisis include Trust Banking Corporation, Tetrad ZB Bank, Premier Banking Corporation, BancAbc, IDBZ, Metropolitan Bank, Imara Corporate Finance, African Export and Import Bank, ReNaissance Merchant Bank, and other institutions.