SIX failed banks that owe creditors have slim chances of recovering depositors’ money as it has emerged the financial institutions have an aggregate net liability of over $190 million.
Allied, Interfin, Royal, Trust, Genesis Investment and the now defunct Afrasia (formerly Kingdom) banks, have failed to pay the bulk of their creditors given that their liabilities of $284 million outweigh their $93,4 million assets. Deposit Protection Corporation CEO Mr John Chikura, told The Herald Business that the net liability is $190,6 million and if they had assets, they could be sold and pay off the debt.
“The biggest problem is the liabilities are greater than the assets.” So far, the DPC has recovered $93 million from the banks’ debtors and assets and the next step will be pursuing directors of failed financial institutions to recover funds.
“That is why the DPC has sued the directors of these banks because they have depositors’ funds and we must recover all of it,” he said. The DPC commenced operations on July 1, 2003 as an independent statutory body established by Government to administer the Deposit Protection Scheme.
A deposit protection scheme enhances consumer protection in the event of bank insolvency. Since 2003, the DPC has compensated depositors of nine failed banking institutions: Century Discount House, Rapid Discount House, Sagit Finance House, Genesis, Royal, Interfin, Trust Bank Corporation, Allied and Afrasia.
Some financial institutions made resolution arrangements outside the DPC, and these are National Discount House, High Veld, Intermarket, and Trust, Royal and Barbican banks whose assets were sold to Zimbabwe Allied Banking Group in 2005.
DPC has paid out $3,2 million out of $6,4 million to clients of failed banks. Government created the DPC to provide a safety net for clients who lost money when banks collapsed. The cover was increased from $500 to $1 000 in June 2016 pursuant to provisions of Section 41(1) of the Deposit Protection Corporation Act (Chapter 24:29).
Payments for depositors of these institutions except Genesis are still ongoing. On the liquidation front, about $8, 57 million has been paid out as dividends to creditors of the six (6) failed CIs under liquidation.
The average estimated dividend to concurrent creditors is about 15 percent. Depositors with $1 000 or less in their accounts get all their funds while high net-worth clients and corporates are paid through the liquidation process on a pro-rata basis. Depositors in banks that closed prior to June 1, 2016 are compensated using the old cover limit of $500. Mr Chikura said reimbursements were progressing well.
“The funds are available and depositors only need to submit a claim form and we will reimburse them within five days via respective banks or mobile phone transfers. All depositors from AfrAsia, Allied, Interfin, Royal, Genesis and Trust banks are welcome,” said Mr Chikura. There are indications that many depositors are unaware of the cushion provided by the DPC.
Besides compensating depositors in the event of bank failure, the DPC also participates in the resolution of failing or failed member institutions and liquidation of closed banks. The deposit guarantee scheme ensures depositors are reimbursed part or all of their money in the event of a bank failure. It is compulsory for every banking institution in Zimbabwe to be a member of the DPC.
Economist Mr Luckson Zembe said; “The supervisor, the Reserve Bank, must not allow banks to operate when they have run out of capital. If they use their capital and exhaust it, they must not be allowed to use depositors’ money to pay salaries, pay rent or pay bonuses out of depositors’ funds.
“If the RBZ closes these banks when their assets are still intact, then the position will be better, the recoveries will be better.” The number of depositors in the closed banks is 54 990, of whom 11 600 have been compensated.
All registered banks are required to pay 0,2 percent of their deposits per year towards the Depositors’ Protection Scheme. DPC has entered into a partnership with ZIMPOST in which depositors in the remote areas of Zimbabwe are now able to walk into any of the ZIMPOST offices to collect or submit claim forms.
The Corporation has engaged in public awareness programmes, which include roadshows, press, radio and television adverts as well as the social media (WhatsApp, Twitter, YouTube and Facebook). DPC also intends to conduct more brand awareness workshops with industry players including banking institutions and mobile money operators. The corporation recently opened an office in Bulawayo for the convenience of people in Matabeleland.