Banks face US$ refund Bill: Veritas

LOCAL legal think-tank Veritas says if the Supreme Court upholds the High Court of Zimbabwe decision dismissing the central bank regulation that separated Real Time Gross Settlement (RTGS) and nostro accounts, banks will have to refund their clients in United States dollars.

On May 14, High Court judge Justice Happias Zhou ruled that central bank regulation Exchange Control Directive RT120 of October 2018, which separated foreign currency accounts into locally and foreign currency-denominated ones, was unconstitutional.

What this means is that banks owe their depositors the US dollars they had in their foreign currency accounts (FCAs) as at October 3, 2018, a day before the central bank regulation was issued. However, Finance minister Mthuli Ncube and the Reserve Bank of Zimbabwe have appealed the judgment.

“The minister and the Reserve Bank were quick to note an appeal against the judgment. This is not surprising, since the principles expounded in it apply to all other bank accounts which the Reserve Bank’s directive converted from US dollar accounts to RTGS accounts in 2018,” Veritas said in a statement on the ruling.

“If the Supreme Court upholds the judgment, as it certainly should, then all banking institutions will have to refund their account holders in US dollars the amounts that they lost as a result of the conversion. And banking institutions that are obliged to make those refunds may have a right to recover from the Reserve Bank the losses they incur as a result of complying with the bank’s directive.”

Added Veritas: “Perhaps the judgment will make banking institutions less ready to comply meekly with directives issued by the Reserve Bank — to insist, for example, on a written indemnity from the bank before they comply with a directive that prejudices their account holders. Put more bluntly, perhaps the judgment will make banking institutions pay more regard to their customers’ rights and interests”.

At the end of last year, the central bank reported that the total broad money supply was $35 billion, with 34,13% being foreign currency deposits translating to about US$477,82 million using the official exchange rate.

Since the coming in of the current government, two major policies instituted by Treasury and monetary authorities have greatly cost the transacting public.

The first was Exchange Control Directive RT120 of October 2018 and Statutory Instrument 33 of 2019 released in February of last year. The latter of the two allowed for the settling of US dollar debts in RTGS dollars, now Zimbabwe dollars, at a one to one parity.

Both actions resulted in billions of dollars in value being wiped off from depositors and creditors.

“The judgment is a resounding affirmation of the democratic values enshrined in the Constitution. It makes it clear that when a court subjects administrative conduct to review — i.e. when the court determines whether or not conduct is legal — the substance and effect of the conduct must be considered, and constitutional values of legality, good governance and the rule of law must be taken into account,” Veritas said.