Reserve Bank of Zimbabwe governor Gideon Gono yesterday announced an eight-fold increase in minimum capital requirements to $100 million for commercial banks — a measure that might put spanners on government’s bid to force foreign financial institutions to sell their majority stakes to locals.
But it is understood that there are already moves in government to reject Gono’s proposals contained in his Monetary Policy statement, which he said were aimed at stabilising the financial sector.
Sources said senior government officials felt the hike was too steep especially coming at a time when Royal Bank had surrendered its licence. The locally owned bank failed to raise $12,5 million to meet the capital requirements.
The tough-talking Gono warned bankers abusing depositors’ funds that they would be prosecuted. Announcing his statement in Harare that was met with deafening silence from banking executives, Gono ordered the financial institutions to submit compliance plans by end of September.
The central bank governor announced a phased recapitalisation exercise for the financial services sector, which is expected to be concluded by June 2014.
This means that shareholders of commercial banks operating in the country are now expected to raise $100 million as minimum capital from the current $12,5 million.
Merchant banks, whose current capital requirements stand at $10 million, are now expected to raise $100 million in capital.
Gono also raised the requisite capital for building societies to $80 million from $10 million as well as that for microfinance institutions to $5 million from $1 million.
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Under the new measures, banking institutions are expected to comply with 50% of the prescribed minimum equity capital for their varying classes by June next year.
Shareholders are also expected to increase that threshold to 75% by year end before fully complying at the end of June 2014.
The eligible capital components for minimum capital would include paid-up share capital, share premium, audited retained earnings and current year retained earnings verified by the banking institutions’ external auditors.
“Every bank whose minimum paid-up equity capital does not comply with the respective prescribed level will be required to submit a detailed recapitalisation plan to the Reserve Bank by September 30, 2012, for its consideration and approval, indicating amounts to be raised and timeframes,” Gono said.
“The increases in minimum capital levels for banking institutions has been necessitated by the dynamic nature of the financial landscape, regulatory requirements, increasing competition and economic uncertainties, which has placed an unprecedented pressure on banks to be adequately capitalised at all times.”
The measures are set to halt the wheels of indigenisation that were currently targeting the banking sector given the capital constraints on the domestic market.
In remarks aimed at proponents of the empowerment plan in the banking sector, Gono said minimum capital requirements were a “precast wall” deterring people from muscling into the banking institutions.
“Capital is your precast wall that protects depositors’ funds. The higher the precast wall, the more, hopefully, you will expect that deposits are protected.
“The lower it is, the higher the risk my brother (war veterans’ leader Joseph) Chinotimba can just jump over,” he said.
Gono warned that errant banks would be dealt with, indicating that the monetary authorities were concerned with the high level of abuse of depositors’ funds.
“I have 16 months to go to the end of my second term. Any nonsense in the financial sector, believe me, you will go before I go,” Gono said.
“That’s my promise to depositors. I have no mercy. I am not seeking to be reappointed. I can even go today. I will make sure that before I go the banking sector will be as strong as at no other point in its history.”
Gono’s last term in office ends on November 30, 2013.
The central bank governor threatened to push for the prosecution of undisciplined bankers.
“If it means putting you in jail in order to make sure that your institutions are safe and sound, I will do that,” he said, adding that there would be amendments to banking sector laws to “cause effect of what I have just said”.
Meanwhile, Bankers’ Association of Zimbabwe president George Guvamatanga said while he was an advocate of higher minimum capital requirements to create stronger institutions, he needed to get the views of members on this latest pronouncement.
