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RBZ Governor Dr. John Mangudya

Business Reporter
Zimbabwe is pressing ahead with the adoption of Basel II with all banks expected to be fully compliant early next year. Local banks are expected to switch over to Basel II by the first quarter of next year as the Reserve Bank of Zimbabwe steps up measures to strengthen the banking sector. RBZ governor Dr John Mangudya in his maiden monetary policy statement last week said the central bank will seek to establish a level of compliance next year.

“The Reserve Bank will conduct a final survey on the implementation progress during the quarter ending 30 September 2014 before banks go live using the Basel II compliant statutory returns beginning the first quarter of 2015,” he said.

To facilitate the adoption of Basel II the central bank has directed that the processes should now be part of Internal and External Auditors’ work plans.
“Banking institutions have made progress in implementing the revised capital framework. Observations made during on-going on-site examinations are that internal systems for banking institutions are showing greater stability as banks continue to upgrade their systems.

“However, the Reserve Bank noted the need for banks to involve independent review units such as internal auditors as well as external auditors in the validation of the Basel II related systems and processes,” Dr Mangudya said.

Basel II is a set of banking regulations which are used to regulate finance and banking internationally.
It attempts to integrate Basel capital standards with national regulations by setting the minimum capital requirements of financial institutions with the goal of ensuring institution liquidity.

To this end the RBZ has adopted a gradual approach to Basel II implementation in order to allow for a smooth transition from the current system to the new approaches.
Basel II promotes the safety and soundness of banks and fosters sound risk management through improved risk sensitivity of capital requirements, convergence of regulatory and economic capital and a menu of approaches which can be varied across institutions to reflect differing risk profiles.

It also encourages banks to improve further their internal risk management systems.
The adoption of Basel II comes at a time when the local banking sector has been rocked by failures in some institution due to the interference of major shareholders in the running of the banks.

In some instances the shareholders who were also involved in managing the banks tampered with client’s savings by advancing themselves huge loans which they failed to repay resulting in the collapse of the banks.
Some of the institutions include Interfin and Royal bank.

The practice raised corporate governance issues and proposals to ensure that shareholders do not interfere in operation of the bank that they own.