Banks must comply

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The announcement by Reserve Bank of Zimbabwe (RBZ) governor Gideon Gono on Wednesday that banks without adequate capitalisation should shape up or ship out marks perhaps one of the important milestones towards stabilising the financial sector in the multi-currency regime.

Presenting his Monetary Policy Statement to bankers on Tuesday, Gono gave all non-compliant banks, including those previously issued with special dispensations for compliance with regard to minimum capital requirements, up to February14 to finalise their recapitalisation initiatives or complete their mergers and acquisitions. In other words, they have to find their Valentine by that date.

It is only fair to say that the banks have been given adequate time to have either sought new equity partners or to merge with others.

Of course, there have been many challenges in coming up with the minimum capital requirements, given the effects of what is now generally known as the lost decade.

However, the fact that the majority of our banks, when 22 out of 25 have managed to raise the minimum requirement of $12,5 million, speaks volumes of the resilience of this oft-battered economy.

We understand that behind the scenes, part of the slow pace in recapitalising was a reluctance by the majority shareholders in most of our banks to let new shareholders in, fearing dilution.

This shows that the concept of a joint stock company is yet to fully receive acceptance in our society.

Not only do the majority shareholders not want to have other investors in on the action, but it seems in many instances they may want to be the sole shareholder.

They say experience is the best teacher and in our case, the debacle in Renaissance Merchant Bank clearly shows the dangers of having a bank’s capital being concentrated in a few hands.

We saw that this can result in majority shareholders treating banks as fiefdoms. And that is very dangerous because really there is no such thing as a private bank.

A private bank would be that which brings its own capital and its owners are the only ones who make deposits and withdrawals with it.

But in normal banking, it is the depositors’ funds that make up the majority of what constitutes a bank’s assets. Effectively, protection of those funds become more critical than those of the shareholder.

Although the minimum capital adequacy requirement set out by the RBZ is $12,5 million, it is gratifying to note that the majority of our banks have exceeded that minimum requirement by far with some being close to $70 million.

This is an important safety valve for our financial sector and may even suggest that the threshold set by the central bank may have been low. But this was acceptable, given that our economy was coming from a low base.

Therefore, the banks that have not met the minimum capital requirements need to quickly come in partnerships that will help them reach the target as on their own they still cannot comply, even if they pooled their resources together. They have the Valentine spirit on their side.

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