Most banks have started implementing the Basell II framework, international capitalisation standard, with a few yet to operationalise their systems, as the Reserve Bank of Zimbabwe steps up its efforts to restore confidence in the fragile banking sector.
This development comes at a time when the central bank recently announced sharp minimum capital requirements for the financial services sector amid outcry from both within and outside the government.
Last year, the central bank said it would introduce Basel II capitalisation requirements, an international standard for banking regulators, which controls how much capital banks must put aside to guard against financial and operational risks.
Central bank chief Gideon Gono announced the new framework in his Mid-Year Monetary Policy Review statement where the Modified Standardised Approach (MSA) for managing credit risk and Alternative Standardised Approach for managing operational risk were proposed for adoption.
The proposed MSA approach requires banking institutions to develop or revise their internal rating systems, if necessary, to ensure reliable and accurate mapping to the new Supervisory Rating System (SRS).
The central bank compelled all banks to submit documentation that outlined the development of the rating systems and derivation of the mapping procedure to the SRS by September 30 2011.
The RBZ envisaged to roll-out the revised framework by January 2013. In his mid-term Monetary policy statement announced last week, Gono said the apex bank would in the transitional period monitor the stability of banking institutions’s Basell II systems and advice the financial institutions.
“I am pleased to advise that most banking institutions have started their internal Basel II parallel runs in line with the Reserve Bank’s Basell II framework. There, however, remain a few institutions that are yet to operationalise and finetune their ratings systems in line with standards outlines in the Reserve Bank’s Basell II framework,” he said.
“With effect from August 1, the central bank increased capital adequacy and tier ratios from 10% and 5% to 12% and 8%, respectively.
“The revision has been made to ensure that banks hold sufficient capital buffers that are available on an on-going basis to absorb unexpected losses in view of increased banking sector risks,” said Gono.
“Banking institutions are, however, urged to continue being vigilant in monitoring risks and develop robust risk management systems as capital alone is not a panacea to all threats facing banking institutions.”