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Bank capital adequacy low

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The African Development Bank (AfDB) says Zimbabwe’s minimum capital requirements for financial institutions remain low compared to those in the region, but warned any upward review will hurt smaller banks.

The Reserve Bank of Zimbabwe (RBZ) has set capital adequacy requirements for commercial and merchant banks at $12,5 million and $10 million respectively.

Several local banks have been struggling to meet the requirements.

“The current capital adequacy requirement is much lower than in Ghana, South Africa, Nigeria and Zambia, but higher than in Angola, Mozambique and Namibia,” AfDB said in its Zimbabwe Monthly Economic Review for March.

“However, given Zimbabwean banks are recovering from the economic decline that characterised the economy before the multiple currency system, higher levels in these requirements would be unfavourable for weak banks.”

In his monetary policy statement in January, RBZ governor Gideon Gono said he would deal decisively with all non-compliant institutions in terms of the Troubled and Insolvent Bank Policy by no later than March 31.

He said the RBZ had noted that despite several extensions of recapitalisation deadlines, some banking institutions had failed to comply.

AfrAsia Holdings recently snapped up 35% in Kingdom Bank’s parent company, Kingdom Financial Holdings Limited, while the National Social Security Authority acquired 85% in ReNaissance (RMB) resulting in RMB and Kingdom banks being adequately capitalised.
Zimbabwe Allied Banking Group which had a negative capital of $15,35 million as at March 1, is said to be finalising negotiations with three potential investors, Unicapital Finance of Mauritius, Swiss-based company AFG Global and a local company Trebo & Khays (Private) Limited.

Genesis Merchant Bank is negotiating with SwissCharge of Zambia and a consortium of local investors for a capital injection of $20 million.

According to local media reports Royal Bank is also in negotiations with Kenya-based Commercial Bank of Africa.

The Kenyan bank is set to acquire 49%, which will enable the local financial institution to meet the RBZ capital requirements.

Meanwhile, the AfDB said the loan-to-deposit ratio in Zimbabwe declined from 76,8% in December last year to 74,1 in January 2012.

“The decline could be attributed to bank cautiousness on lending, given the high prevailing amount of non-performing loans,” reads part of the report.

In January 2012, annual broad money supply (M3) growth (defined as total banking sector deposits) remained unchanged at the January 2011 figure of 33,2%.

As at January 31 2012, the composition of total banking sector deposits stood as demand deposits (59,5%), saving and short-term deposits (32,3%) and long-term deposits (8,2%).

The report said short-term deposits continued to dominate total deposits while long-term deposits remain a minor component of security.

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