Published January 29, 2008
Since the Reserve Bank of Zimbabwe (RBZ) Governor, Gideon Gono scuttled the opportunity to name and shame before a parliamentary committee, he then diverted attention from his culpability in the cash crisis by presenting banks as being responsible. He has knack of blaming everybody else except himself.
On January 16, 2008, he introduced a new high value set of bearer cheques, although one was expecting them to include Z$50 million and $100 million and the removal of the $250,000 and $750,000 bearer cheques. This saves money of printing and is convenient for high value transactions.
The new notes were to be circulating with effect from January 18, 2008.
Banks did not get enough notes for their clients during the period January 16-18, 2008. On January 19, 2008, the Herald reported that “at least $13 trillion was yesterday released into the market as the Reserve Bank of Zimbabwe stepped up efforts to ease cash shortages. Commercial banks and building societies each received $1 trillion of the new higher denominated notes from the central bank… This increased the cash in circulation by between 10 and 15 percent… There were some long queues but not as bad as they were in a few weeks ago, particularly during the festive period. Although the cash situation had vastly improved, it was still not enough to satisfy demand. While some people appeared satisfied, others appeared to have lost faith in the banking system.”
And then on January 21, 2008, boom, the governor claimed that the “RBZ was stuck with trillions of dollars” of new bearer cheque notes in its vaults. Discerning observers could see that this governor was misleading us or was simply lying. The Herald got the details about the cash released obviously from the RBZ and there were no trillions on Friday and Saturday ready for releasing to banks.
Suddenly, the villains and easy prey for the blame game were to become banks because the blame on cash barons no longer made sense. The RBZ’s subsidiary company, Fidelity Printers, got so busy printing money during the period January 16-20, 2008 before banks were expected to collect cash on the 21st.
The RBZ could have been hoarding the trillions for release on the 21st and then use it as a publicity stunt on the day he was supposed to have appeared before the parliamentary committee.
Unprecedented Newspaper Expose
The January 25, 2007 edition of the Zimbabwe Independent newspaper had an unprecedented expose of a devastating crisis in the banking sector. This followed another crisis following a cash crisis which earlier had been blamed on so called cash barons and currency speculators.
The Zimbabwe Independent had a lead story entitled “Banks face collapse” by the news editor, Dumisani Muleya and an editorial commentary entitled “Banking crisis deep-rooted”. There were 3 more stories entitled “Banks sail in choppy waters”; “Banks trapped in liquidity crunch”, “RBZ has duty to protect banks – Chikura” by the business editor, Shakeman Mugari; political reporter, Constantine Chimakure and business reporter, Augustine Mukaro, respectively.
The stories were covered by a record 5 writers and this cannot be arising from the resourcefulness of the newspaper in covering the goings in the banking sector. One of the stories even contained excepts of a confidential letter from the ZABG chief, Stephen Gwasira to the central bank.
Almost all banks were covered in the stories. What was missing was just a graphical design of ‘Exclusive’ written in bold red on the newspaper.
Details cannot have leaked from all of them at the same time to the newspaper. Given that it is only the governor’s office handling communication with the banks and is the only person with the passionate contact with the media in the RBZ, it can therefore be deduced that he released the documents about the state of banks to the newspaper in the middle of the night.
On January 25, 2008, the Herald quoted his circular to banks that he was making it difficult for banks not to get financial assistance from the central bank by increasing the overnight loans interest rate to 1,500%. He also ensured that when the desperate measure has to happen, it will not be the institutional set-up of the central bank that deals with the matter but him ONLY with the bank’s chief executive officer. Armed with such details, he will be able to dish detailed documents and recorded audios to the media to destroy the career of the banking CEO because he is in a fighting mode.
Who is also going to be the biggest beneficiary of the banking crisis because as the banks wish to be financed of their positions, they will be forced to sell properties, liquidate forex and sell shares. For this to happen, the bank transfer system must be operating efficiently and there must be reasonable value when offloading shares or liquidating forex. The forex would only have to be offloaded to the RBZ at lowly ridiculous rates. Any person or institution would be buying it at parallel rate. Who would want to be called to account by the RBZ in such a situation?
The stock exchange has remained stuck in red and those who are selling have not received value for the shares because of the transfer system that is down.
Therefore, the banks will remain stuck with the forex, shares and properties, while the liquidity situation remains worse.
The governor requested the services of the Minister of Finance, Samuel Mumbengegwi (a brother to Clever Mumbengegwi, one of the RBZ board members and the Minister of Foreign Affairs, Simbarashe Mumbengegwi) to ruthlessly deal with bankers as was reported by the Herald newspaper on January 23, 2008.
Coincidentally, the person we have as a Minister of Finance knows no other language except threatening and abrasive talk. Gono found a political partner as a Storm trooper. We now know that:
- It was not the so called cash barons, forex dealers and the unbanking businesses after all who caused the cash shortage crisis but banks;
- He had a desire to close banks in involved in “errant ways”;
- He gave the Minister of Finance $400 million for his son’s requirements after a bank turned down the request for an overdraft or the maximum withdrawal was then $50 million per day/account, or both;
- We have a Minister of Finance who is an educationalist by profession but who shows the whole world that he is does read newspapers on his own, does not get press briefings for hard copy and online newspapers, is so ill-informed of what is happening in the country and that he deliberately ignored the unfolding Flatwatergate where Z$21 trillion was used to prop up the parallel forex market. Gono had the time to sanitize the scandal with some manipulated internal inquiry report to pre-empt a judicial commission of inquiry;
- Zimbabwe is “over” banked is a remark that is a forerunner to the closure of more banks as what he did happened in 2004 with no benefit to the economy. We are yet to see banking services confidence index survey done independently of the RBZ to show the current and expected changes in banks' income, expenses, profitability, competitive position, credit standards and investment. An over-banked economy has too many banks to enable them individually to generate good returns. One wonders if our banks are struggling to make good returns. In South Africa, the Banking Services Confidence Index, which is part of the Financial Services Confidence Index, is a barometer of satisfaction within the banking sector on the prevailing business conditions, and is conducted by Ernest & Young;
- He would want to victimise and fix some banking executives before he is asked to leave the office of governor. He said “I can assure you that if I am to be fired, I would have fired many of you”. Thus, he has assumed the absolute role of a shareholder and Board of Directors of all banks in Zimbabwe;
- He thinks he has lost control of the banking sector as the supervisory authority and he will soon reclaim it by engaging in a serious fight with bankers whose voices have never been reported in so called meetings with banking executives with him. When we see the departure of a banking CEO, he has already told us that he will be engaging in very dirty and vindictive attacks against banking executives;
- He accused bankers of undermining his authority yet we have the most passive banking grouping in the world in the face of an emotionally unstable and reckless central bank governor;
- He told the whole world that he has lost confidence with his four of his deputy governors have become cosy with the banking sector;
- He will re-organize financial institutions as if he is the board of directors;
Banker-Client Relationship
A central bank is a nation's principal financial institution or monetary authority, which regulates the money supply and credit, issues currency and manages the rate of exchange. It functions as the government's banker and the bankers' bank ("Lender of Last Resort"). As the bankers’ bank, it holds deposits representing reserves of commercial and merchant banks. It is also the lender of last resort to the banking sector during times of financial need or crisis.
From the above, it can be seen that the government and banks are the clients of the central bank.
The concept of “banker-client” relationship is built on the foundations of "doctor-patient”, “lawyer-client”, “auditor-client” and “journalist-source” confidentiality. The concept is derived from Common Law. It is based on ethics, not law, and goes at least as far back as the Roman Hippocratic Oath taken by physicians.
Bankers, lawyers, auditors and physicians are fiduciary agents. A fiduciary agent is a person required to act for the benefit of another (the principal) with the duties of good faith, trust, confidence, reasonable care and diligence, loyalty, reasonable disclosure, accounting and candour. This duty obligates the fiduciary agent to act in the best interest of the principal. The central bank must act in the best interest of the government and banks, which in turn will act in the best interests of the citizens and depositors/investors, respectively.
The Oath of Hippocrates, traditionally sworn to by newly licensed physicians, includes the promise that "Whatever, in connection with my professional service, or not in connection with it, I see or hear, in the life of men, which ought not to be spoken of abroad, I will not divulge, as reckoning that all such should be kept secret." The laws of Hippocrates further provide, "Those things which are sacred, are to be imparted only to sacred persons; and it is not lawful to impart them to the profane until they have been initiated into the mysteries of the science."
Banker-client confidentiality stems from the special relationship created when a banking client seeks the services and advice of a banker. It is based upon the general principle that individuals seeking banking services should not be hindered or inhibited by fear that their concerns or conditions will be disclosed to others.
Banking services clients entrust personal and institutional state to their bankers, which creates an uneven relationship in that the vulnerability is one-sided. There is generally an expectation that bankers will hold that special knowledge in confidence and use it exclusively for the benefit of the banking services client.
Waiver of Confidentiality
A privilege belongs to the banking client, not the banker. Generally, only a banking services client may waive the privilege. A banking client's written consent is needed before a banker can release any information about the client. But there are other ways in which a client may "waive" the privilege of confidentiality.
The professional duty of confidentiality covers not only what banking clients may reveal to their bankers, but also what bankers may independently conclude or form an opinion about, based on their examination or assessment of clients. Confidentiality covers all account details as well as communications between the banker and client. It also includes communications between the banking service and other professional staff working with the banker.
The duty of confidentiality continues even after clients using the bank.
Generally speaking, individuals voluntarily seeking banking services have an expectation that the communication is held in confidence. This expectation of confidentiality does not need to be expressed. It is implied from the circumstances.
All the explicit and implicit pronouncements about the assistance given to various government ministries and departments; corporate and banking institutions; and the state of the banking sector by the RBZ governor break the banker-client relationship and banking ethical practice expected in the ordinary sense.
Gono will ever stand out to be the worst example of a banker and a central banker because he is so reckless with the information that he handles. Which sane bank will approach the central bank for financial assistance, if such communication will find itself splashed in the newspapers? Had it not been out of desperation to be assisted, all the banks should have taken a class action against the central bank for unethical practice as defined by banker-client confidentiality.
A Likelihood Bank Run
According to Barron’s, an online accounting and banking dictionary, a bank run (also known as a ‘run on the bank’) is a type of financial crisis. It is a panic which occurs when a large number of customers of a bank fear it is insolvent and withdraw their deposits. It begins when the public begins to suspect that a bank may become insolvent. As a result, depositors begin to withdraw their savings. This action can destabilize the bank to the point where it may in fact become insolvent.
A bank run is caused by loss of depositor confidence. Media glare on banks as instigated by the regulator cannot allow them to deal with their problems quietly.
The governor we have in Zimbabwe gets so overwhelmed and restless with information. With the recently introduced electronic tracking system, he will always find victims with it vindictively.
There is nothing that can make an ordinary or a discerning depositor/investor to leave funds in the custody of our banks when they have been battered like this. Depositor confidence denotes a feeling of emotional security about a bank’s abilities or capacities. Confidence, as a fact or condition of being without doubt, has been severely been damaged by the central bank governor.
The Law on Secrecy of Bank Deposits or Republic Act (R.A.) No. 1405 of the Philippines declares that all types of deposits in banking institutions including investments in bonds issued by the Philippine government and its political subdivisions and instrumentalities are considered of absolutely confidential nature. As provided, deposits may not be examined, inquired or looked into by any person, government official, bureau or office. It is also unlawful for any official or employee of a bank to disclose to any person any information concerning deposits. Violation against this law subjects the offender to certain penalties.
Deposit records may be disclosed only (a) upon written permission of the depositor, (b) in cases of impeachment, and (c) upon order of a competent court in the case of bribery or dereliction of duty of public officials or when the money deposited or invested is the subject matter of the litigation.
“The initial indications of trouble come from a regulatory evaluation of bank capital. A judgment that one or more large banks are insolvent can reflect a reassessment of the viability of their borrowing clients (the reassessment triggered, perhaps, by such extraneous factors as a political event that removes protection from hitherto favoured borrowers), or because of the revelation of bank fraud or mismanagement on a large scale.
“Depositors may not at first react to the regulator’s emerging awareness of solvency problems, whether because of lack of information, or because they are confident that the authorities will protect them; instead, it is the potential for looting of the insolvent bank by insiders that generates the urgency for containment action." – ‘Systemic Financial Crises - Containment and Resolution’ (Cambridge University Press), edited by Patrick Honohan and Luc Laeven.
Gono is armed with so much nationally sensitive information amassed during the course of his work. He will either destroy himself or destroy the nation with it. Do we care if he destroys himself?
We should be worried that a central bank governor addresses and talks to the nation more than 6 times in four months and issues endless press statements and leakages, when the President of the country has spoken to his supporters at the airport upon a return from an international trip.
Whom do we turn to for survival? The Minister of Finance, who is a brother to an RBZ board member, (Clever Mumbengegwi) was broke and recently he got assistance from Gono for his son of Z$400 million. The Parliament of Zimbabwe faces dissolution pending the elections on March 29, 2008. The Anti-corruption Commission has been heavily compromised by his personal involvement in resourcing it and in any case, other than jingles reminiscent of Jonathan Moyo, there is nothing else the Commission is capable of doing.
All the hope and expectations are focused on the State President!
Banks face closure by and as caused by this reckless clown of a Central Bank Governor whose mouth knows no caution and restraint. We have a ‘benzi rakapfeka suit’ as the governor. Akabhabhauka! He has no sense of discretion with the information he handles.
In settling unending scores, this is the man who went on a rampage in 2004 destroying people’s livelihoods, savings, investments and caused anguish in households by closing banks few weeks upon assumption of the office of governor on December 1, 2003. Few months before the expiry of the 5-year term in December 2008, he has been possessed by the same demon of economic and social destruction.
Whenever he talks, we are counting very high costs, especially in the delicate financial services sector and banking sub-sector.
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