Banks face crisis of confidence.

Author:Kapepula, Nkandu
Position:Zambia's banking system

The banking system in Zambia is facing a major crisis of confidence following the failure of two more banks over the past two months. The last three years witnessed an explosion of new banks all eager to cash in on government bonds but now the boom is over, and the cracks are beginning to show.

The collapse of two more indigenous banks at the tail end of last year has plunged the indigenous banking sector into a massive crisis of confidence. Commerce Bank was placed under receivership by the Central Bank on November 29 while Co-operative Bank closed down on December 5 without even notifying Bank of Zambia (BOZ) (the Central Bank) as required by law. This brings to four the number of indigenous banks that have gone under in the past eight months.

The blow is being felt most severely by the ordinary Zambian who is already reeling under the Structural Adjustment regime. Worse, the manner in which the banks have collapsed, the allegations of high-level fraud and the Government's attitude to it all is seriously undermining confidence in the entire banking system.

One example was the rather belated effort by BOZ Governor, Dr Jacob Mwanza, to alert depositors to the impeding danger. At a press conference, he stated: "Once banks are there, they fall... We have to get used to this. Like any other business, from time to time you get failures but it does not mean that when a bank is small it will collapse."

This was small comfort to depositors who woke up the next morning to news that the Co-operative Bank had wound up business.

The Central Bank has come under heavy criticism for failing to efficiently monitor and supervise commercial banks. But it counters that no amount of supervision will ever prevent banks run by unprofessional and irresponsible managers and directors from failure.

As if to underline the point came the disclosure that the Registrar of Banks, Mr Felix Kani had demanded the removal of Mr Musa Siame, Chairman of the Commerce Bank. Mr Siame had been the principal shareholder in another indigenous bank, African Commercial Bank (ACB) which had also collapsed. According to highly placed bank sources he is alleged to have sold all his shares and withdrawn all his money a few days before the closure of ACB. The Central Bank which had advanced ACB several million Kwacha to support its weak liquidity position had been left high and dry.

In a letter dated November 22 addressed to Commerce Bank's Managing Director Mr Rashid Khan, Mr Kani said...

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