The Monetary Policy Statement (MPS) presented by the Reserve Bank of Zimbabwe (RBZ) governor Gideon Gono on January 31 2013 is notable for four key issues.
Financial Sector Spotlight with Omen Muza
Firstly, the memorandum of understanding (MoU) between the RBZ and banks in respect of bank charges and interest rates potentially has far-reaching consequences on both the viability of banks on the one hand and affordability of banking services on the other.
Secondly, well-meaning as it is, the re-emergence of directed lending in the form of mandatory support for the small and medium enterprises (SMEs) sector needs to be carefully considered before implementation as the “surgical approach” of focusing only on funding without considering other issues such as skills development and capacity building could negate the positive aspects of this new policy ambition.
Thirdly, Banking Sector Vision 2020 signifies a focus not only on near-term issues, but on the long-term future of the banking sector as well.
Last but not least, the Banking Amendment Bill 2013, is expected to bring true accountability and transparency to both the corporate governance aspects and regulatory considerations of banking.
In a nutshell, this is a policy statement that testifies of a central bank with several balls in the air — regulatory reform, compliance monitoring and supervision, consumer education and protection, institutional and infrastructural development, etc — all of which must be juggled at once for optimum results.
This instalment interrogates some key aspects of the monetary policy statement and their impact on the operational and regulatory landscape of the banking sector.
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The monetary policy identifies the country’s precarious external sector, characterised by a “burgeoning current account deficit”, as a threat to growth of the deposit base. Given the highly illiquid nature of domestic markets, it is imperative to sort out the country’s risk profile in order to attract foreign direct investment which can bridge the gap.
The decline in the loans-to-deposit ratio from 81,79% in 2011 to 79,79% in 2012 is a manifestation of banks’ quest to reposition their lending portfolios due to several factors such as unabated liquidity challenges accentuated by the high level of non-performing loans.
Additionally, banks’ desire to preserve existing capital against the background of steep new capital requirements means that their lending postures are likely to be less buoyant for the foreseeable future.
Although at 19%, the allocation of credit to the agriculture sector was the highest in 2012, it remains below the 30% mark which the RBZ once encouraged banks to comply with. The reason why it will be difficult to achieve this mark is the high credit default risk currently attributed to borrowers in the farming community.
With over 60% of banks in compliance with the phased new capital requirements, the MPS perpetuates the “safe and sound” mantra in respect of the banking sector’s health.
However, with a number of banks still struggling to meet the first phase of compliance, hopefully this time around there will be no bank failure despite the assurance, otherwise the credibility of the good governor’s future pronouncements may suffer irreparable damage. Banking Sector Vision 2020 must be lauded because it speaks of a central bank governor who is thinking far beyond his tenure.
Apparently, he is not only looking at securing his legacy by bequeathing a robust banking sector, but apparently wants to set the agenda for the sector’s development long after he is gone. One of the envisioned characteristics of the banking sector in 2020 is the establishment of universal banks.
Feedback: [email protected] Omen N Muza writes in his personal capacity. He is a banker and managing director of TFC Capital (Zimbabwe) (Pvt) Ltd, a Harare-based financial advisory, research and training company with interests in banking, technology and agriculture as well as the convergence area among them.
