Bank directors and shareholders who abuse depositors' funds risk prosecution and going to jail in terms of amendments proposed in the Banking Act, the Reserve Bank has said. Presenting the 2014 Monetary Policy Statement in Harare on Wednesday, acting RBZ Governor Dr Charity Dhliwayo said the bank was working with Government to effect the proposed amendments. Key elements of the amendments include the introduction of provisions that subject bank directors, senior managers and shareholders who act negligently or fraudulently to civil and criminal liability. "The new provisions will seek to introduce criminal as well as civil liability of any shareholder, director or senior manager of a banking institution, who will be found to have acted negligently or fraudulently, resulting in loss of money by depositors or failure of a banking institution," she said. The RBZ said it will issue an enhanced fit-and-proper-person assessment framework setting out the parameters for fitness and probity assessments of baking institutions' senior management. The amendments mooted in the Banking Act come amid revelations that directors, senior managers and shareholders of banking institutions account for most of banks' non-performing loans. As at December 31 2013, the level of total insider loans in the banking system was US$175,3 million (including Interfin). About US$117,4 million (66,97 percent) of the loans was non-performing. A number of banks have in recent times failed due to reasons linked to abuse of depositors' funds by either directors or shareholders and such institutions also include Trust Bank and Capital Bank . Dr Dhliwayo said the growth in non-performing loans within insider loans is a worrisome development. Although the RBZ would net out insider loans from banks capital, this did not deter the abuse. The RBZ said with immediate effect, no bank shall grant loans to insiders and related interests (as defined in the Banking Regulations, SI 205 of 2000) except where such credit is granted as part of the employees' conditions of service and is available to other employees. Individuals and companies may, however, access loans from other banks where they are not classified as insiders or related parties and all banks have been directed to review the existing levels of insider loans, ensure adequate provisioning and report insider loans to RBZ. The Central Bank added that existing insider loans should not be renewed or rolled over and that banking institutions should take measures to ensure repayments are made in terms of the facility. Further, banks have been directed to set aside adequate provisions that reflect the level of credit risk in their loan portfolio. The monetary authorities said that any violation of the proposed measures will attract a penalty in terms of the relevant provisions of the Banking Act.
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