The majority of Zimbabwean banks have been fined for involvement, “in activities that ran contrary” to the terms of operating licenses such as illegal currency dealings, in the latest bid by the authorities to save the plummeting Zimdollar unit.
Zimbabwe’s banking sector has been fragile over the past few years with multiple bank failures, cash shortages and sudden policy pronouncements. These include shifts in functional currencies that have worsened the plight of the sector.
President Emerson Mnangagwa said on Sunday that out of 16 banking institutions, “only five passed the integrity test” with the rest having been “involved in activities that ran contrary” to terms of their operating licenses.
Previously, authorities have sanctioned mobile money platforms for contribution to the spike in the parallel market exchange rate. Now, Harare says, banks have been operating on the wrong side of the law.
The Reserve Bank of Zimbabwe (RBZ) has revealed more details, saying in its August mid-term monetary policy that investigations of the local banking sector have revealed abuse of loan facilities and illegal forex dealings. It said investigations had unearthed malpractices by about 15 banks.
“The investigations by the FIU (Financial Intelligence Unit) showed significant abuse of loan facilities by borrowers through arbitrage, multi-dipping, borrowing on behalf of third parties and diversion of foreign exchange obtained through the foreign exchange auction system to parallel market activities,” said the central bank.
It, however, did not name any of the banks found on the wrong side of the law although the central bank and Mnangagwa indicated that the offending banks have been penalized. Information at hand shows that fines for offending banks run into tens of thousands of US dollars.
Investigations by the Financial Intelligence Unit further revealed that “suppliers of goods and services to government were also a major contributor to the depreciation of the exchange rate on the parallel market as they were using forward foreign exchange rates in the pricing of their goods and services,” added the central bank.
The government has now stopped all payments to suppliers and contractors until due diligence and evaluation exercises have been completed. Economists have always argued that funds paid to government contractors were being used to mop up foreign currency from the streets of Harare.
Zimbabwe now uses a willing seller willing buyer interbank exchange rate regime that has been criticised for being ineffective by local companies. OK Zimbabwe, a major retailer in Zimbabwe, said yesterday that the inadequacies of foreign exchange supply were contributing to pricing distortions on the local market.
“The willing buyer willing seller interbank market exchange rate against which formal businesses are required to benchmark pricing is not as attractive as the rates offered in alternative unregulated markets. This continues to impact competitiveness of our USD prices, impacting foreign currency collection,” OK Zimbabwe said.