Interbank market to ease liquidity crunch

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The Reserve Bank of Zimbabwe (RBZ) expects the resumption of interbank trading to ease the current liquidity crunch affecting the economy.

In his update on the status of the banking sector last week, RBZ governor Gideon Gono said the central bank liquidated its $83,53 million statutory reseves debt to banks through government stocks.
RBZ gave banks stocks in proportions of 30% for two years, 30% for three years and 40% for four years.

“This development should see banks being able to trade surplus funds in the interbank market, thereby alleviating the current liquidity situation in the economy,” Gono said.

An interbank lending market is a place where banks extend loans to one another for a specified term.
Most interbank loans are for maturities of one week or less, the majority being overnight. Such loans are made at the interbank rate.

Banks are required to hold an adequate amount of liquid assets, such as cash, to manage any potential bank run-ins by clients.

If a bank cannot meet liquidity requirements, it will need to borrow money in the interbank market to cover the shortfall.

Commenting on the recent move by the central bank, Bankers’ Association of Zimbabwe president John Mushayavanhu said the liquidation of statutory reserves would go some way in easing the current crunch.

“Now banks have got security to lend. It will, however, have to be on a bilateral arrangement between banks.

“A bank that is short of cash can now borrow from other banks,” Mushayavanhu said.

Gono said banking institutions had committed themselves to repatriate $200 million for on-lending to the productive sectors of the economy after they were directed to maintain a maximum of 25% of their foreign currency account balances in offshore nostro accounts.

“The Reserve Bank will continue to monitor compliance with the directive on an ongoing basis.

“I urged banks to release some of the huge idle balances held with foreign banks to the local market to improve the liquidity situation and support key productive sectors of the economy,” Gono said.
The maintenance of a huge portion of banks’ deposits in nostro accounts has been partly blamed for the liquidity problems the country is facing and the subsequent stifling of the productive sectors of the economy.

A nostro account is an account operated by a bank outside its borders for purposes of making settlements for its clients abroad.

The central bank has also introduced short-to-medium-term paper in order to stimulate interbank trading.