THE closure of Interfin Banking Corporation and Genesis Investment Bank due to chronic liquidity problems has shaken the country’s fragile banking sector, fuelling fears of contagion and systemic risks.

After failing to save the banks from collapse, the Reserve Bank closed Interfin - which had a negative core capital of $93m - and Genesis bank on Monday.

The latest crisis could further shake the $3bn sector and undermine economic recovery efforts. The situation is made worse by the controversial indigenisation policy which demands that foreign-owned companies, including banks, surrender 51% of their shareholding to locals.

After initially targeting the mining sector, the campaign, spearheaded by President Robert Mugabe’s Zanu PF party and his Indigenisation and Empowerment Minister Saviour Kasukuwere, has shifted to foreign-owned banks.

Kasukuwere has clashed with Reserve Bank governor Gideon Gono, who has warned against destabilising the banking sector and threatening the economic recovery. Zimbabwe has 26 banking houses, and Kasukuwere has demanded they each reapply for new licences.

The closure of Interfin and Genesis followed the shutting down of ReNaissance Merchant Bank last year, whose collapse was blamed on a lack of liquidity, poor corporate governance, looting and brazen theft by its executives, reports said.

Genesis was closed following its failure to meet the $12,5m minimum capital requirement, despite talks with more than 20 potential inventors over the past three years. The bank, which had a negative core capital of $3,2m, is now in liquidation.

Interfin, meanwhile, was closed and placed under the management of prominent curator Peter Bailey for six months. The bank’s closure was a result of low capitalisation, concentrated shareholding and abuse of corporate structures, high levels of non-performing insider-and related-party exposure, a chronic liquidity position and income generation challenges. It was also beset by incompetence and violation of banking laws.

The collapse of the two banks has raised the spectre of bankruptcies, which last hit Zimbabwe’s banking system in 2004 and destabilised an economy already in a meltdown and engulfed by hyperinflation amid a political crisis.

Local banking experts and the International Monetary Fund have warned since 2009 that unless urgent measures were taken to recapitalise, merge or close struggling banks there would be bankruptcies across the sector.

Zimbabwe’s 26 banking institutions include 17 commercial banks, four merchant banks, four building societies and one savings bank. Of these, only foreign-owned banks, British-owned Barclays and Standard Chartered Bank, Standard Bank ’s subsidiary Stanbic, Nedbank ’s MBCA, Togo-based Ecobank, and CABS, a subsidiary of Old Mutual, are strong, with a combined deposit base of more than $1bn.

Local banks are struggling due to poor economic performance, tight liquidity conditions, limited lines of credit and low savings.