More bad news for banking industry

The collapse of two banks in Zimbabwe in the last week has spelled more bad news for confidence in the troubled industry, economists have warned. The country's second largest building society, Intermarket Building Society, was closed by the Reserve Bank of Zimbabwe (RBZ) on Friday last week, with officials from the central bank saying they wanted to protect depositors, preserve the assets of the group, and protect the financial system. This was followed by the closure of a commercial bank, Barbican Bank, four days later, with RBZ officials saying they had moved in when it emerged that the bank had liquidity problems after it allegedly externalised large amounts of foreign currency. "Depositors are fast losing confidence in the financial sector as a result of the commotion taking place. With the closure of two banks, depositors are bound to panic and withdraw all their savings, and this has the capacity to cause cash shortages," said Witness Chinyama, group economist for Kingdom Financial Holdings. He added that the confusion in the banking sector was also being fuelled by the fact that problems in the industry were being discussed openly in the press. "The press seems to have contributed to the crisis in the banking sector because the public is no longer sure what is happening in the sector, as there are many reports which could confuse members of the public. As a result of the confusion, depositors are likely to just come up with their own interpretations and withdraw all their savings," Chinyama told IRIN. John Robertson, an economic consultant, said he was concerned by the possibility of a domino effect taking hold. "We could quite easily see many more banks closing down because of the declining confidence in the banking sector," he told IRIN. According to Robertson, "The banks are now collapsing because they should not have opened in the first place. A lot of people were given banking licences to compete against international banks like Barclays Bank and Standard Chartered, but they were very weak and could not survive in a climate where the economy was shrinking." Intermarket Building Society and Barbican Bank have been placed under curatorship for six months, during which time all transactions will be frozen. Tens of thousands of depositors receive their monthly salaries through the building society, including teachers, soldiers and policemen. Protestors besieged the institution this week demanding their salaries. The curator for Intermarket Building Society, Ngoni Kudenga, said efforts were underway to ensure that depositors would be able to access their pay. "Salaries shall be processed as soon as we finish working out some details. There might be delays but, ultimately, people will be able to get their money," he was quoted as saying by the official newspaper, The Herald. The executives of the two banks were reported to have skipped the country, joining senior officials from the National Merchant Bank, who fled two weeks ago after their bank was accused of externalising funds. Under Zimbabwe's new anti-graft laws, suspects accused of externalising money can be detained by police for 21 days without bail. On 1 December, the new RBZ governor, Gideon Gono, began his official duties with a mandate to end the crisis in the financial sector, which had been suffering the effects of cash shortages, high inflation, a weak local currency and under-capitalisation. "The curtain is being drawn against the era for the proliferation of weak, poorly managed financial institutions dependant on cheap and unlimited central bank credit," Gono said when announcing his new monetary policy. With the prospect of the collapse of several banks imminent, the RBZ stepped in with an injection of funds, on condition that the rescued banks made changes to their management, and the central bank was given better oversight of their operations.