Local banks have advised the Reserve Bank of Zimbabwe to review the ongoing capitalisation exercise of banks as well as reduce the minimum threshold for on-lending to the country’s small to medium enterprises due to liquidity constraints besetting the economy, NewsDay Business has learnt.
By Bernard Mpofu
Acting Business Editor
In its submissions to the central bank ahead of today’s monetary policy statement, the Bankers’ Association of Zimbabwe (BAZ) proposed a raft of measures required to stabilise the fragile financial services sector at a time when several weak banks are under the supervision of the apex bank.
The association, however, remained quiet on the issue of bank charges and interest rates despite threats by Finance minister Patrick Chinamasa to take action after financial institutions increased service charges following the central bank’s lifting of a cap on the charges.
Acting RBZ governor Charity Dhliwayo will present her first monetary policy statement after the exit of her predecessor Gideon Gono last November.
In 2012, Gono announced an eight-fold increase to $100 million in minimum capital requirements for commercial banks. Some predominantly locally owned banks have struggled to meet the staggered capitalisation exercise which should be completed by this year.
“The obtaining applicable minimum capital requirements should be clarified to the banking public by announcing the official scrapping of the previously set deadlines,” reads the BAZ submission in part.
“The Monetary Policy statement should be very clear on the minimum capital requirements and it is the banking sector’s view that a staggered approach is not the best option, but the monetary authorities should set one aggregate figure to be attained by a specific date.”
BAZ also advised the central bank to reduce the mandatory threshold for extending credit to the SMEs due to liquidity constraints despite a relentless push by Zanu PF to increase support to the thriving sector which, according to government figures, employs over 75% of the adult population in Zimbabwe.
“The Monetary Policy Statement should review the SME lending requirement from 30% to 10% in view of the prevailing tight liquidity conditions.
Alternatively, the 30% ratio can be applied only to new lending to avoid inadvertently compelling banks to write poor quality assets in an effort to comply with the current requirement. Government should consider issuing guarantees to support lending to SME’s that currently do not have collateral,” the bankers association said.
In his 2014 national budget presentation, Finance minister Patrick Chinamasa said the economy had taken a paradigm shift where a new economy (informal sector) had emerged, urging banks to lend to the sector.
Turning to plans to restore the central bank’s lender of last resort role, BAZ said the monetary policy statement must give definitive terms of how the lender of last resort will function and the eligible assets that banks will be able to use as collateral.
This, according to the submission, must take into consideration that there are less liquid instruments on the bank balance sheets; hence provision must be made for Bankers Acceptances and other non-fine assets.
“Monetary Policy should also clarify and operationalise the Afreximbank interbank facility. Paying greater attention to how best the instrument can unlock value to those institutions best needing the liquidity. While the current proposed framework looks noble, its consideration of eligible assets tends to limit the extent to which the facility will assist the banks in need of the liquidity support,” said BAZ.
With the increasing amount of the non-performing loans (NPLs), BAZ said the establishment of the credit bureaus should be prioritised in the monetary policy statement to improve the overall management of credit risk within the financial sector.
Official figures show that NPLs rose to 15% last year from 5% at the introduction of the multi-currency regime in 2009.
“The RBZ should consider resuming the role of a central depository of cash for banks in order for the industry to benefit from economies of scale and assist in alleviating the shortage of change in the market,” BAZ said.