Banks to Undergo Credit Rating In Zimbabwe

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‎Government will convert to law guidelines for the annual credit ratings of banks that were drafted in 2004. According to the Banking Amendment Bill which was gazetted recently, at least once a year every banking institution shall have its financial state assessed or rated by a credit assessment institution accredited by the Reserve Bank of Zimbabwe.

Analysts say the availability of a rating allows depositors, and other creditors, to assess the relative riskiness of individual banks and to make informed investment decisions.

A credit rating requirement is also likely to enhance incentives for banks to operate their business prudently in order to avoid a rating downgrade.

Under the proposed law, the RBZ is expected to publish guidelines for the accreditation of credit assessment institutions.

A credit rating is an independent opinion on the capability and willingness of a financial institution to repay its debts. It provides a simple summary measure of relative risk that is relatively easy to understand.

The Ministry of Finance also intends to establish an oversight council to, among other issues, monitor risks to the country’s financial systems that could arise from abuse of depositors’ funds.

According to amendments of the Banking Act, the council, to be chaired by the Finance Minister would be referred to as the Financial Sector Oversight Council.

The Bill to amend the Banking Act is expected to be tabled in Parliament soon.

It is proposed that the Finance Minister would have four deputies – the governor of the Reserve Bank, chairperson of the Insurance and Pensions Commission, chairperson of the Securities Commission and chairperson of the Deposit Protection Corporation.

“The function of the Financial Sector Oversight Council shall be to monitor, supervise and co-ordinate the collaboration of the (banking institutions),” read the proposed draft.”The procedure of the Financial Sector Oversight Council shall be as prescribed or as fixed from time to time by the minister.”

Analysts say the establishment of the oversight council was long overdue in light of the “weaknesses” in the country’s financial systems.

The proposed structure of the council and its composition is almost identical to the Financial Sector and Oversight Council, a United States federal government organisation, established by Title I of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was signed into law by President Barack Obama on July 21, 2010.

The Dodd-Frank Act provides the Council with broad authorities to identify and monitor excessive risks to the US financial system arising from the distress or failure of large, interconnected bank holding companies or non bank financial companies.

The US Council also monitors risks that could arise outside the financial system.

 

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