Zimbabwe bank folds

Harare - One of Zimbabwe's smaller banks, owned by a senior minister in President Robert Mugabe's government, has surrendered its licence because it was insolvent and had a high level of non-performing loans, two sources at the bank said on Thursday.

Unlisted Allied Bank, majority-owned by Transport Minister Obert Mpofu, has been struggling to meet capitalisation requirements and volunteered to close.

Allied's closure is not unexpected after the central bank said in November that along with three others it was facing liquidity and solvency problems as the economy slows and customers find it harder to repay loans.

Allied holds less than 5% of banking market share, and its demise is unlikely to create major problems for Zimbabwe's 18 other banks, six of them owned by British and South African institutions. Four banks hold 60% of the $5bn deposits in the system.

Allied had since last year been seeking new investors to shore up its capital base, but this had failed, one source with knowledge of the bank's operations said.

Locally-owned banks are particularly vulnerable to the economic downturn and are also viewed as applying less stringent rules on lending compared with foreign-owned banks.

Under current law, a bank is viewed as a separate legal entity that is liable for any losses. However, the government is considering changes that would make bank owners liable for compensating customers.

Mpofu, who is also a senior ranking member in the ruling ZANU-PF party, said he was not directly involved in the bank's operations. The bank's chairperson was not immediately available.

"It was a difficult decision but it was unavoidable. We could not continue operating like that," said another source who is a senior bank manager but not allowed to speak to the press.

The central bank said it would issue a statement on Friday.