Harare — Reserve Bank of Zimbabwe Governor Dr Gideon Gono yesterday read the riot act to banks for their continued reluctance to lend to the productive sectors, setting thresholds to guide their lending.

Banks have been recommended to lend 30 percent of their deposits to the agricultural sector, 25 percent each to manufacturing and mining and 20 percent to other sectors of the economy.

In an address to bank chief executives and journalists in Harare yesterday, Dr Gono said it was unfortunate that banks had chosen to starve agriculture at a time when the country was anticipating a 23 percent growth in the sector, while other sectors of the economy had also been left stranded.

"It does not make sense that a bank sits on deposits of US$150 million and lend US$40 million. Even after taking into account statutory reserves and FCAs that we owe, still these statistics are frightening.

"This is one area among many that I am in total agreement with my Minister of Finance (Tendai Biti) that something needs to be done," he said.

Banks were presently sitting on US$1 billion deposits of which US$500 million had been loaned out, giving a deposits to loans ratio of 49,3 percent.

In some cases, banks were lending as low as 0,97 percent of deposits to agriculture.

The central bank chief hit out at foreign-owned banks, which he said were following instructions from their external shareholders and other parties not to on-lend to the productive sectors, disregarding local directives.

"If you are operating in Zimbabwe, there can only be one regulator, which is the Reserve Bank of Zimbabwe which I superintend.

"I will soon be having cups of tea with some of you . . . We cannot irresponsibly sit back while we see deposits not being ploughed back and yet farmers are crying out for support," said Dr Gono.

Statistics released by the central bank yesterday showed that agriculture, the economy's mainstay, only received 21 percent of total loans.

"There must be something wrong somewhere. As an agriculturally-based economy, the economic fortunes of the nation predominantly depend on the performance of the agricultural sector.

"Preparations for the current agricultural season already in motion will largely depend on adequate funding from the banking sector," he said.

Farmers have lamented the absence of adequate funding as a challenge that could adversely affect the 2009/10 summer cropping season.

Government and other stakeholders have chipped in with assistance but the funds cannot meet demand.

"Not extending loans is not an option. Not extending loans and shying away is not a display of skills. You don't avoid risk, but you manage risk," said Dr Gono.

Yesterday, Dr Gono also announced that 23 of the 26 banking institutions in Zimbabwe had now achieved the prescribed minimum capital requirement set by the RBZ with the exception of ZABG, CFX, NDH and Legend Asset Management Company that is due to lose its licence.

Of these seven institutions, Standard Chartered, Barclays, CBZ, BancABC, FBC, CABS and Kingdom have not only surpassed the initial requirement but have exceeded the full requirement thresholds set for March 31.

Commercial banks had until September 30 to raise their core capital to the minimum requirement of US$6,25 million and US$12,5 million by March 31 while merchant banks and building societies needed to raise theirs to US$5 million and US$10 million by March 31.

Finance and discount houses were required to raise US$3,75 million and US$7,5 million respectively and asset management companies US$0,25 million and US$0,50 million.

Core capital is comprised of money representing a permanent commitment of funds by the shareholders which includes issued and fully paid up ordinary shares or paid-up non-cumulative irredeemable preference shares.

The money can also be in the form of reserves consisting of non-repayable share premiums, capital reserves and retained earnings for the current year.

When the initial deadline lapsed only 16 of the 26 institutions had complied, resulting in the central bank extending the deadline to October 30.

By the October 31 deadline CFX had total capital of US$1,29 million against a requirement of US$6,25 million, ZABG, US$541 766 against a requirement of US$6,25 million, NDH, US$200 886 out of a requirement of US$5 million, Legend had US$34 933 out of a requirement of US$250 000.

Standard Bank had US$25,59 million, Barclays US$23,7 million, CBZ US$21,5 million, BancABC US$16,6 million, FBC US$16,3 million, CABS US$15,7 million and Kingdom US$14 million.

Dr Gono said CFX and NDH would get a reprieve to allow them to fully implement capitalisation strategies presently underway.

ZABG, he said, would be given more time to comply with the prescribed minimum paid-up equity capital requirements as it was being returned to the owners.

"Rather than being theoretical, we are being pragmatic because there are concrete plans underway to raise capital.

"It should be noted, however, that we are not going to be extending this leniency forever . . . They have up to the end of the month to comply," he said.

With regard to Legend Asset Management, Dr Gono said the institution had not only failed to recapitalise or provide a plausable recapitalisation plan but it had moved its principal offices without notifying the Reserve Bank and could not be located.

"In view of this Legend Asset Management Company's licence will be cancelled after due process has been followed.

"The due process is not academic, I just have to inform my principals on the action that I have taken," he said.

The governor said the capital verification exercise would continue as it was fully embedded in the central bank's ongoing on and offsite risk-based examination activities.

He added that any banking institution, which purports to have satisfied the requirements through artificial asset, swaps or covert loan schemes would be taken to have committed serious fraud.

"The Reserve Bank will cause an immediate reversal of such fraudulent schemes and impose appropriate supervisory action including suspension of deposit mobilisation or closure of the banking institution," he said.

Dr Gono also announced that effective January 1 2010 every banking institution would be required to have finalised the capitalisation of non-distributable reserves to ensure their capital components are in conformity with applicable banking laws and regulations as well as international best norms.