Zimbabwe asset firm directors in court

Zimbabwe asset firm directors in court

RESERVE BANK GOVERNOR GIDEON GONO

• Banks face collapse

• End of era for forex dealers

• Gono new RBZ governor

• Tea boy to national purse

• 1000 held in forex blitz

By newzimbabwe.com staff
07/01/04
TWO directors of a Zimbabwe company appeared in court yesterday on fraud charges, becoming the first legal casualties of a financial sector crisis that has seen a run on deposits by panicked investors.

The country's central bank said on Monday it was reviewing the operations of local banks, after new governor Gideon Gono last month criticised some firms over their lending practices and said he would not bail out those in trouble, triggering panic withdrawals by investors and depositors.

On Tuesday two directors of asset management firm ENG made an initial court appearance on charges of fraudulently borrowing billions of dollars from three firms, including Century Discount House, without issuing bills to secure the loans.

"Investigations carried out by police so far have revealed that some of the money ... was being used to buy forex by the accused on the black market which was used to buy expensive luxury cars and houses," the state prosecution said in its case.

Defence lawyer Eric Matinenga asked the court not pursue the charges, saying the state had presented no evidence to show they acted outside normal practice for asset managers.

Zimbabwe's official Herald newspaper said on Tuesday police had seized eight of 18 luxury cars worth billions of Zimbabwe dollars bought by the two directors in the last few months.

The central Reserve Bank of Zimbabwe said on Monday it had closed Century and cancelled its licence to protect depositors and creditors after finding that the firm was not "in a sound financial condition".

Local media have speculated on the imminent collapse of several mostly new banks formed after President Robert Mugabe's government liberalised the sector in the 1990s.

One third of Zimbabwe's commercial banks have been blacklisted, heralding the collapse of Harare's once sophisticated financial sector.

"We have an avalanche in progress, and there is a known list of banks which have little stamina and so, for them, it will be very destructive," said John Robertson, an independent economist.

The banks have fallen victim to hyperinflation and flagrantly corrupt lending policies. Zimbabwe's real inflation rate exceeds 1,000 per cent yet the government has set interest rates at only 800 per cent, forcing most banks to lend at a loss.

To make matters worse, many have chosen to favour President Robert Mugabe's wealthy followers with unsecured loans at preferential rates of interest.

The combination of negative real interest rates and bad debts from supporters of the ruling Zanu-PF party has driven six of the 15 black-owned banks to the verge of insolvency.

Some are so short of cash that they have started offering interest of 650 per cent for 10 day deposits. Few of these banks will have the means to honour their promises.

Only foreign-owned institutions offer complete security. Confidence remains high in Standard Chartered, which is British, and South Africa's Stanbic bank. The names of the threatened banks cannot be disclosed for fear of precipitating their collapse.

Zimbabwe's economic collapse has created countless money-spinning opportunities for unscrupulous bankers with links to Mr Mugabe's regime.

At the official exchange rate, £1 is worth Zimbabwe $815. On the black market, £1 buys Zimbabwe $7,000. Some banks have bought hard currency from the Reserve Bank at the official rate and pocketed huge profits by selling it on the black market.

Critics say the central bank has failed to put in place appropriate supervisory measures to monitor the institutions and that some have misused investors' money in speculative deals for personal gain.

They say skewed government policies since independence from Britain in 1980 have led to an economic meltdown shown in soaring inflation, unemployment of 70 percent and acute shortages of food, fuel and foreign exchange.

Mugabe argues the economy has been sabotaged by local and foreign opponents of his drive to redistribute large tracts of white-owned commercial farms among landless blacks.
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