Zimbabwe proposes law limiting shareholding in banks

October 21, 2015 6:08 am 

HARARE, Oct. 20 — Zimbabwe is proposing to limit shareholdings in banks as part of measures to tighten financial control and improve corporate governance in the sector after five banks have closed since 2009.

According to the Banking Amendment Bill submitted before parliament, individuals will be allowed to hold 5 percent shareholding in banks, down from 25 percent while non-banking companies will hold 25 percent down from 40 percent.

Five local banks have closed since 2009 mainly due to the liquidity crunch and poor corporate governance.

"Upon written application to that effect having been made by the shareholder concerned, 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," reads part of the amendments, seen by Xinhua Tuesday.

The proposed changes, which are subject to approval by parliament, have been made as part of economic reforms that government is undertaking under an IMF supervised Staff Monitoring Program (SMP).

Restoring confidence in the banking sector through among others tightening banking sector regulations is one of the several reforms that Zimbabwe is pursuing under the two-year SMP running until December 2015.

Zimbabwe's financial sector is dominated by foreign owned banks that include units of Britain's Standard Chartered Bank and Barclays and South Africa's Standard Bank and Nedbank.

To avoid non-performing insider loans which caused many of the banks to fail, the proposed changes limit to 10 percent of paid-up equity capital of the bank the amount of money that can be extended to directors, shareholders or principal officers.

The credit extended must also be 100 percent covered by collateral and must be deducted from paid-up equity capital of the bank.

Under the proposed changes, individuals convicted of offenses relating to money laundering or terrorist financing cannot become directors of a bank's board.

No individual would be allowed to continuously serve as non-executive directors of a bank for a period of more than 10 years, while all directors will be liable for debts accrued by a failed bank unless they can prove their innocence, according to the amendments. (PNA/Xinhua)

RMA/EDS

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