Depositors demand compensation after bank failures, MPs call for reform
In a heated session of Parliament, legislators proposed a series of measures to protect bank depositors and punish financial institutions responsible for past bank failures.
The motion, introduced by Murehwa West Member of Parliament Farai Jere, comes after a period of financial turmoil in Zimbabwe that saw several banks collapse, leaving depositors with significant losses.
Jere highlighted the plight of pensioners and ordinary citizens who lost their savings due to “poor corporate governance in the Banking sector.”
He pointed out that current laws do not adequately address these issues, leaving depositors with “no greater justification” for delays in amending the Deposit Protection Corporation Act (DPC Act).
The motion calls for a multi-pronged approach. Firstly, it urges the Ministry of Finance to compensate depositors “in the currency in which they deposited their money.”
This proposal stands in stark contrast to current practices, where depositors often receive compensation at a significantly devalued rate.
Jere demands “comprehensive legislation” to prevent future financial crises. He argues that reforms implemented since 2013 have been insufficient and calls for a more robust legal framework to deter negligent banking practices.
The motion further proposes forcing financial institutions to compensate clients who lost money due to mismanagement. Jere set a deadline of March 31, 2024 for these measures to be enacted.
The motion also calls for amendments to the DPC Act.
Jere outlined a number of proposed changes, including smoother transitions between the Reserve Bank of Zimbabwe (RBZ) and the DPC during bank closures, allowing the DPC to recover assets lost through mismanagement, and streamlining the process for depositors to claim compensation.
These amendments aim to bring Zimbabwe’s deposit insurance framework into compliance with international best practices. Jere emphasised the importance of depositor confidence in maintaining a stable financial system.
“The depositors of the failed bank have similarly suffered irreparable loss while the Final Distribution Liquidation Account that lay for inspection at the Master of the High Court offices indicate that by operation of the law, the individuals who caused the demise of the Bank made off with residue constituting real assets.
“It is Parliament’s role to put in place laws that will deter bankers from negligent banking practices and supporting the DPC in its plight to amend its Act is a good start,” Jere noted.
The motion alleges poor corporate governance in the banking sector led to bank failures and caused significant losses for depositors. Here are the banks listed in the motion that are accused of failing:
Interfin Bank Limited (under liquidation), Royal Bank Limited (under final liquidation), AfroAsia Bank Limited (under liquidation), and Trust Bank Limited (under liquidation).
The motion claims these banks’ failures were caused by poor corporate governance. This includes a lack of checks and balances, such as failing to follow proper loan origination processes or allowing conflicts of interest.
The motion also noted negligence and recklessness was responsible for the demise of the banks. This includes decisions by bank directors that put the bank’s depositors at risk. The motion alleges some banks engaged in activities that deliberately harmed depositors.
The motion is likely to spark a national conversation about accountability in the banking sector.
It remains to be seen how the Ministry of Finance will respond to these demands, but the Zimbabwean lawmakers are taking a stand to protect consumers and prevent future financial catastrophes.
