HomeNewsCrunch time for banks

Crunch time for banks

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Thursday is D-Day for banks to meet the Reserve Bank of Zimbabwe (RBZ) capital requirements.

Most financial institutions have met the Reserve Bank of Zimbabwe (RBZ) minimum capital requirements with seven said to be making frantic efforts to beat the deadline.

The RBZ in January extended the deadline by an additional six months to this Thursday after several banks failed to meet the December 2010 deadline.

The minimum capital requirements for commercial banks is $12,5 million while merchant banks should raise $10 million. Building societies and discount houses are set at $7,5 million.

In his 2011 Monetary Policy Statement in January this year, RBZ governor Gideon Gono said as at December 31 2010, 19 out of 24 banking institutions (excluding POSB, Intermarket Banking Corporation and the defunct NDH Merchant Bank) were in compliance with the prescribed minimum paid-up capital requirements.

“In order to consolidate the current improving stability in the financial sector, it has become necessary that the deadline for paid-up capital thresholds be further extended to the 30th of June 2011,” he said.

IMF mission chief for Zimbabwe, Vitaliy Kramarenko, in a report after concluding a one-week visit last week said seven banks are persistently undercapitalised, a number of which are insolvent with one recently placed under curatorship.

“Loans-to-deposit ratios in some banks have reached high levels and attendant risk growth of their credit portfolios contributes to depletion of their liquidity buffers,” said Kramarenko.

As a result of aggressive lending and possible capital outflows, the banking system’s liquidity is increasingly constrained, with about a third of banks having imprudently low liquidity buffers.

“The asset quality is deteriorating sharply, raising concerns about poor portfolio performance and increasing credit risk.”

In late December ZABG, NMB, Kingdom Bank, TN and Agribank were among the institutions that had not yet announced their compliance. Bigger banks like CBZ, Stanbic, FBC, Standard Chartered, Barclays and ZB had already complied. In the aftermath of ReNassaisance Merchant Bank being placed under curatorship, Finance minister Tendai Biti urged RBZ governor Gideon Gono to come up with a roadmap on the position of weak, exposed and undercapitalised banks.

Gono said the banking sector has generally remained in a safe and sound financial condition, notwithstanding the challenging macroeconomic environment characterised mainly by market illiquidity, low savings, volatile deposits and short-term loans.

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