CHARITY Dhliwayo, the acting Reserve Bank of Zimbabwe (RBZ) governor will unveil her first monetary policy statement, albeit in an acting capacity, before end of week at a time when the financial sector is topsy-turvy.
By Aaron Makaza
The question on everyone’s lips is: How does she hope to tackle the systemic liquidity crisis that partly contributed to the collapse of Trust Bank about a month ago as more and more indigenous banks gasp for bailout packages to escape a crisis that has persisted since 2003?
To be fair on Dhliwayo, she has been thrown at the deep end without sufficient means to fight the crisis, whose continuation could only impede efforts by the government to reverse the economic slide since robust financial mediation is sine quo non to the success of these efforts. Also, she is still in an acting capacity, possibly holding forte for someone else – which limits her effectiveness.
Much of the problems the RBZ is grappling with have been in existence for decades, but because nothing was done to remedy them earlier, the situation has been allowed to reach crisis levels.
On top of the central bank’s challenges is a crisis of confidence among the bulk of Zimbabweans who are now stashing their cash in their homes, instead of banking it.
Thousands, if not millions of depositors, have lost their savings either through bank failures or on transiting to dollarisation in 2009. The prospect of incurring more losses is causing them to shun banks, hence the level of deposits has significantly gone down.
As of October 31, 2013, banks were collectively sitting on $3,951 billion in deposits, a far cry from what the situation used to be like before the economic crisis set in. Demand deposits are dominating at 52,7% of total deposits, followed by under 30-day deposits at 33%, while long term deposits continued to lag at 15%.
Also contributing to the crisis of confidence is the RBZ’s failure to pay its debts, aggravated by its unilateral decision to raid Foreign Currency Accounts of private citizens and organisations at the pinnacle of the economic recession.
Incorporate government’s policy inconsistencies into this equation, one can actually conclude that there is a limit to what Dhliwayo can do to reboot confidence.
Perhaps what she can do on her part is to do “damage control”, ie straightening up things at the central bank.
On top of her list should be straight forward operational issues that continue to stick out like a sore thumb. To start with, she must quash rumours about the possibility of the resurrection of the Zimbabwe dollar before the economy could turn the corner, once and for all.
Finance Minister Patrick Chinamasa has already ruled that out, but the market would still need reassurance from the head of the RBZ, under whose ambit Fidelity Refiners and Printers, which has the responsibility of printing the country’s currency, falls.
The market is also keen to hear how the bank is responding to the threat of bank failures, made real by the collapse of Trust Bank. As it is, Allied Bank, formerly ZABG Bank and MetBank are struggling to dispense cash to depositors, mirroring the worsening liquidity crisis.
Banks are in deep trouble with non-performing loans and have no recourse to credit through the inter-bank market ever since the RBZ became incapacitated from playing its lender of the last resort function due to hyperinflation.
The sector’s average non-performing loans to total loans ratio increased from 1,8% as at December 31, 2009 to 15,64% as at September 30, 2013. In June last year, non-performing loans were at 14,51% against regional best practices of below 3%.
The result has been failure by banks such as MetBank and ZABG to meet customers’ real time gross settlement instructions.
Nevertheless, the government has been up in arms with the banking sector, insisting lending should be affordable to promote economic revival. While industry shares this view, the stark reality is that it is beyond the banks to soften credit.
Here is the explanation: Deposits sitting with banks, despite being low, are mostly of a transitory nature and therefore pricey. Lines of credit, despite attracting lower interest rates in stable economies, are lending in Zimbabwe at a premium because of the high country risk, hence banks can only do so much.
But a quick hit for Dhliwayo would be to resolve outstanding issues that her predecessor could have easily deposited into his out tray.
For example, the RBZ cannot continue to be mum on the current status regarding its dispute with Time Bank, Intermarket Bank and others, which have a bearing on property rights and by extension, confidence. That beside the point, justice delayed is justice denied.
Another quick hit is for her to adhere to Chinamasa’s orders by maintaining the current levels of banks’ capitalisation in order not to strain this sector anymore. All she needs to do is to clarify the minimum capital requirements now expected of commercial banks, building societies and merchant banks, among others.
She is also expected to move with speed in operationalising a Credit Bureau.
In his 2014 National Budget statement, Chinamasa said confidence in the financial sector was paramount for enhancing liquidity within the economy.
Unlike during the period preceding the multi-currency system when the RBZ still had a lot of influence on the liquidity available in the country, the current environment requires that the country earns whatever liquidity it needs.
“The strategy to restore confidence in this sector would need to be done, not haphazardly, but on a sequential, methodical and systematic basis,” he said.
Treasury is thus making an effort to capitalise the RBZ to strengthen its capacity to superintend over the financial services sector.
With Chinamasa having broadly outlined the policy guidelines and direction, it is not going to be easy for Dhliwayo to operate within them and still hope to make a difference. True, she will play her part but she needs all the arms of government, civil society, industry and commerce, labour etc to play theirs too in order to win the battle, but not necessarily the war.
Aaron Makaza is an economist based in Botswana. He writes here in his personal capacity