In this instalment of the Financial Sector Spotlight (FSS), I do not focus on any particular theme as I would normally do.
Instead, I touch base with some local and international issues that have dominated the news headlines lately.
But first, please allow me to revert briefly to last week’s article on the Five Principles of Financial Regulation for Stability in 2012.
Charles Taylor — not the Charles Taylor, you will be relieved to know, but the chief operating officer of the International Centre for Financial Regulation (ICFR) — wrote from London both in appreciation of the article and to set the record straight.
“I read your article in Newsday on Usha Thorat’s five principles and their applicability to Zimbabwe with interest. It is good to see her principles applied to another jurisdiction,” he said, before taking the opportunity to point out that Usha Thorat is actually a “she” and not a “he” as implied by the article.
FSS apologises to Usha, who sits on the advisory council of ICFR for the oversight.
Of delinquent MPs and rising credit default risk
Back home, I am intrigued by the case of the legislators who are reportedly refusing to repay their motor vehicle loans.
We are informed that about 250 MPs were “given” $30 000 each to buy vehicles in 2009 under the Parliamentary Vehicle Loan Scheme.
The honourable MPs are now reportedly refusing to repay the loans, citing the reason their remuneration is too little for them to afford the loan repayments; never mind that they recently received a windfall of $15 000 each in respect of arrears for allowances.
Even more intriguing is the fact they allegedly did not sign any kind of loan agreement with Treasury (nor with anyone for that matter).
This sets the cat among the pigeons and raises two pertinent questions.
Firstly, is this another case (or curse?) of borrowers clamouring for debt which they have no capacity to repay?
At the time of borrowing, were the honourable MPs not aware of the “small matter” of their modest remuneration?
Secondly, should we be scared or angry (or both?) when men and women who are not only responsible for making our laws, but also for upholding them enter into unwritten and apparently unenforceable contracts whose terms and conditions are not clear with those who manage the country’s finances on our behalf?
The honourable MPs must know that while we are figuring out answers for these answers, we are connecting the dots between their actions and those of others who have contributed to the rising spectre of credit default risk in the banking sector, through various acts of commission or omission.
Four reasons why the euro will survive
Enough ink has been spilt already on the subject of whether the euro will survive the raging eurozone debt crisis in defiance of the lethargic manner in which Europe has attempted to solve its problems to date.
As it turns out, some interesting perspectives are emerging on the issue, which I thought I could share.
Firstly, and perhaps rather predictably, some experts — let’s call them “euro-optimists” — are asserting the euro will not only survive but even thrive due to the world’s longing for a currency to rival the longstanding hegemony of the US dollar.
To illustrate how unwieldy US dollar dominance is sometimes considered in certain circles, an influential German banker is reported to have compared it to “being in a boat . . . or a bed . . . with an elephant”.
Secondly, the historical and political background of the euro makes European powers see it less as a common currency and more as the price of peace.
Thirdly, it is common cause the prospect of the euro fragmenting into individual currencies simply isn’t a palatable alternative, according to one John Maxfield who compares today’s currency markets “to a dark alley in an unfriendly neighbourhood . . . it’s not somewhere you want to go alone”.
Last but not least, eurozone leaders are keenly aware of the need to restore investor confidence in its future and the fact that at their December 2011 summit they recognised existing infrastructure is insufficient to support a monetary union that may signal the beginning of their renewed attempts to rescue the euro.
Conversion of statutory reserves into tradeable paper
After close to three years of holding on to “non-performing” assets in the form of statutory reserve balances, the recent announcement by Finance minister Tendai Biti that the Reserve Bank of Zimbabwe (RBZ) is mulling converting statutory reserve liabilities to banks into tradeable paper, was no doubt welcome relief for banks.
In the absence of cash to settle outstanding liabilities, the Bankers’ Association of Zimbabwe has been pushing hard for that route.
In addition to easing the security challenges faced by banks in accessing the RBZ’s lender of last resort facility, this initiative is also expected to improve market liquidity and inject some life into the interbank market as banks hopefully begin to lend to each other against the tradable paper.
It will, however, be critical for the market to have absolute confidence in the ability to redeem the paper if it is to serve any meaningful purpose, something that would be achieved by injection of an equivalent amount of cash into a ring-fenced account at the RBZ.
The RBZ has made it clear banks which are not “scratching the national economy’s back” and are hoarding liquidity may find it difficult to access this facility.
Monetary policy statement
On Tuesday January 31 2012, governor Gideon Gono announced the much-awaited Monetary Policy Statement, highlights of which include the final Valentine’s Day recapitalisation deadline for undercapitalised banks, the formation of the Financial Stability Committee, notice periods for high-value cash withdrawals, introduction of the International Financial Centre and the focus on asset-based securitisation.
The next FSS instalment will be an in-depth analysis of the monetary policy statement.
Weigh in with your insights on firstname.lastname@example.org.
•Omen N Muza writes in his personal capacity. He is a banker and managing director of TFC Capital (Zimbabwe) (Pvt) Ltd.