GOVERNMENT has signed a memorandum of understanding (MoU) with the African Export-Import Bank (Afreximbank) to provide debt securities that could be used as collateral for interbank funds placements in order to promote interbank dealings among Zimbabwean banks active in trade finance.
In a statement after signing the MoU on Monday, Afreximbank president Jean-Louis Ekra said the move would alleviate the liquidity challenges confronting the country’s financial sector.
According to the MoU, the Ministry of Finance and the Reserve Bank of Zimbabwe, Afreximbank Trade Debt-backed Securities (AFTRADES) would be provided to participating banks as debt securities.
“Our objective is to use this facility to enable trade finance banks in Zimbabwe to access the much-needed liquidity from cash-surplus banks in the country, thereby increasing their capacity to deepen their trade finance activities,” Ekra said.
Ekra said that Afreximbank’s decision to introduce the facility was motivated by its recognition of the serious constraints limiting the access of Zimbabwe’s trade finance banks to funding as a result of the liquidity challenge confronting the financial sector.
Under the terms of the MoU, AFTRADES would be structured as a collateral swap involving the issuance of securities by Afreximbank to participating banks in exchange for trade–related collateral or securities presented by those banks.
The government of Zimbabwe, through the Ministry of Finance, would serve as the facility’s guarantor and liquidity support contributor, up to agreed levels, while the RBZ would grant the regulatory approvals required by the participating banks.
In addition, the lender of last resort would provide the infrastructure required for the implementation and administration of the facility.
Only solvent banks, which are not facing fundamental problems of viability, will be eligible for the facility, according to the memorandum.