Stability in financial services sector vital

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In the past few weeks, government and the Reserve Bank of Zimbabwe (RBZ) have been implementing a raft of measures to restore confidence in the banking system which is reeling from a serious liquidity crunch.

The latest move was the resumption of interbank trading last week. We feel this was long overdue but would still go a long way in instilling confidence in the banking sector.

If allowed to operate properly, the system will also ease the liquidity crunch threatening to reverse the few gains made in the rehabilitation of the weakened economy.

The interbank market is an important segment of the foreign exchange market.

It is a wholesale market through which most currency transactions are channelled.

The resumption follows the liquidation of a $83,53 million statutory reserves debt to banks through government stocks.

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

The 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.

With the system up and running there is no doubt that the banking public will be reassured that they will be able to access their funds as and when they require them

It is critical to note that if banks themselves are unable to obtain the funds necessary to maintain their own businesses, they would be unable to extend credit to consumers, firms, mortgage borrowers, students, and many other types of borrowers.

Therefore, the resumption of this system could not have come at a better time when there is a huge appetite to borrow from individuals.
It will also quell fears that the country was sliding into a banking crisis.

Finance minister Tendai Biti and the RBZ will also do well to maintain the momentum in their endeavour to bring back normalcy in the financial services sector.

Stability in the financial services sector is the key to turning around the economy and should have been the major priority when the inclusive government was formed in 2009.