Zimbabwe’s rising vulnerabilities in the banking sector need to be addressed by stepping up supervisory efforts and better enforcing compliance with prudential requirements, the International Monetary Fund(IMF) has said.
In its report on the state of the country’s economy, the Bretton Woods institution said the Reserve Bank of Zimbabwe (RBZ) needs to intervene swiftly to deal with banks that fail to restore compliance with minimum capital requirements.
“Require banks exposed to the RBZ to raise capital if needed, after completion of RBZ restructuring, raise the prudential liquidity ratio to 25% from 20% and exclude illiquid claims on the RBZ from the definition of bank’s liquid assets, while ensuring that non-compliant banks have credible transition schedules to rebuild their liquidity,” IMF said.
“The recommended tightening of prudential requirements and their stricter enforcement would also contribute to a reduction in credit growth to a more sustainable pace.
“However, there is broad consensus among policy makers that there is no fiscal space for such a facility. The authorities conveyed appreciation for continued IMF technical assistance on stress testing and expressed further fund technical assistance in this area.”
According to the report, the government said it would remain vigilant in monitoring vulnerable institutions in the banking sector due to the rising risks in the sector.
“The Ministry of Finance will work closely with the Reserve Bank of Zimbabwe to find the best way forward in light of the staff’s advice to tighten liquidity requirements enforce minimum capital requirements and strengthen monitoring of credit risk,” the IMF said.
In the first-quarter Treasury bulletin January to March Finance minister Tendai Biti said the total deposits in the financial sector increased from $2,2 billion in January to $2,578 billion in March while lending increased from $1,68 billion in January to $1,99 billion in March.
The lending to deposit ratio was at 77,3% in the first quarter. The banking sector is facing liquidity challenges due to the absence of the effective lender of last resort.
Last year the government made available $70 million to be used as lender of last resort for banks but the money is just too little for the huge appetite in the sector.