The Reserve Bank of Zimbabwe (RBZ) is yet to resume its lender of last resort function despite the allocation of $7 million and $100 million in 2010 and 2011 respectively, by treasury.
RBZ governor Gideon Gono recently said the central bank was supposed to assist other banks, but was not doing so, because it did not have money.
The $7 million is still lying idle. Its seated there and cannot do anything. We need no less than $150 million to perform the lender of last resort function, he said.
In the 2012 National Budget, Finance minister Tendai Biti allocated $100 million to the central bank to resume the lender of last resort function, but the bank was yet to receive the money.
We are in discussions about when we will get it. Its not money available locally, but externally, Gono said.
Since the introduction of the multi-currency system, the lender of last resort function has not been operational, as the central bank has no capacity to provide funding to banks facing liquidity challenges.
The lender of last resort pool in a dollarised economy should constitute between 50% and 150% of banking sector deposits.
In our view, a lender of last resort fund based on a proportion of the deposit base has a better relationship to potential liquidity developments on the market, said Gono.
The establishment of effective lender of last resort functions following the $100 million fund announced by the Minister of Finance in his 2012 Budget statement, would undoubtedly restore some confidence in the banking sector and spur economic activity.
He said conditions for accessing foreign lines of credit have affected the liquidity situation in the economy.
Persistent liquidity constraints in the economy may result in reduced public confidence in the banking sector leading to financial disintermediation, he said.
Gono said this would erode the pool of funds available for deficit units including producers in the economy.