CHEQUE TRUNCATION SYSTEM FAILS

 

IN February this year I wrote that the Bank of Zambia (BoZ) has become a major channel of economic makeover under the current government administration.

With the advent of the new administration in September 2011 the Central Bank became a critical driver of change and has since then recorded debatably more innovations than any other government wing.

Before the end of the year, the BoZ revised the minimum statutory capital requirement from K12 million or $2.3 million to about K104 million for local commercial banks and to about KR520 million or $100 million for foreign banks.

The reserve ratio for both local and foreign currency deposits were pegged at five per cent from eight per cent while the core liquid assets ratio came down to six per cent from nine per cent.

Systematically, the BoZ introduced the Policy Rate in March last year while transforming the Base Lending Rate (BLR) into a mere lending interest rate.

On December 19 2012 the BoZ announced the capping of the effective annual lending interest rate that commercial banks can charge any borrower which currently is pegged at 18.25 per cent.

The BoZ moved a step further and introduced a cap on the effective annual lending interest rates that non-bank financial institutions it licenses charge their customers.

The Central Bank implemented the Kwacha rebasing and effective January 1 2013 Zambia has had a new currency.

The BoZ had become more proactive, the performance which has enabled it to achieve all these feats.

This year, one of the major measures is the Cheque Truncation System (CTS) for all commercial banks which was intended to completely change this mode of payment and revolutionalise the cheque clearing system.

Cheque truncation is the conversion of physical cheque into a substitute electronic form for transmission to the paying bank.

Instead of manually moving the cheque from one bank to another for payment, under the CTS banks use electronic images thereby bringing down the time required for processing.

The BoZ in partnership with the Bankers Association of Zambia (BAZ) and the Zambia Electronical Clearing House Limited (ZECHL) introduced the CTS in the country with effective from February 1, 2013.

The Central Bank said this is an efficient method of clearing cheques using images between banks as opposed to sending physical cheques presented for payment in a bank by individuals or corporate bodies.

The implementation of the cheque truncation was supposed to benefit banks and the public in a number of ways.

“To facilitate implementation of the new cheques clearing system, BAZ has introduced new cheques with enhanced security features which are consistent with the operational requirements of the CTS.”

“In addition to the standard features of a cheques which will include the name of the bank or branch on which the cheques is drawn, date, amount, bank code, name of drawer ,crossing, Magnetic Ink Character Recognition (MICR) code line, the new cheque will have the following distinct features, ” the statement from the BoZ read in part.

According to the BoZ the CTS were supposed to:

•             Eliminate the cumbersome physical presentation of cheques, save time and cost associated with handling physical cheques.

•             Shorten and standardise the clearance period across the country to one day meaning the value of the cheque will be given a day after the date the cheque is deposited.

•             Improve the velocity or speed of cash flow between the transacting parties in the economy because of reduced clearing period.

•             Reduce risks associated with manual handling and physical movement of cheques.

•             Reduce the incidences of cheque-related frauds.

•             Introduce efficiency in the work processes for banks because of the reduction in the work-time and manpower required at the branches manning the activities.

•             Encourage the wider use of cheques in settlement of payments.

Nine months down the lane, however, the system seems to have lamentably failed to live up to the promise of efficiency.

Instead of the one day  a cheque should have been taking to clear, it still takes three to four days to do so while the payees are waiting.

From my interaction with some bankers and other related professionals I gathered that there was lack of preparedness on the part of the commercial banks before implementing the CTS.

The lack of preparedness was as the result of a short notice from the BoZ on the measure.

As the results by February 1 2013, most banks had not acquired the necessary facilities for the exercise and even up to now some of them do not have.

Other observers feel the commercial banks have just “sabotaged” the exercise saying they had showed some resistance right from the start.

Whatever the reason, the fact is that the CTS has failed to work, resulting in the authorities reverting to the old system and deferring it to next year, while banks which are able to implement it are free to do so even now.

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