THE Bankers' Association of Zimbabwe has recommended the repatriation of funds foreign-owned banks hold in offshore (Nostro) accounts. BAZ contends the move would improve the tight liquidity situation currently pervading the entire economy and constraining business and economic activities.

The proposal follows the tight liquidity situation that has characterised the economy since December 2011 due to high value and high volume transactions.

During the period December to mid-January most banks ran short of liquidity to fund Real Time Gross Settlement transfers, which riled their clients.

In one instance a major bank processed US$400 million worth of transactions and this drained liquidity in the market resulting in an RTGS gridlock.

In other countries foreign banks are either not permitted to take deposits or are only allowed to have concentration at growth points and in rural places.

The four big foreign-owned banks hold an estimated US$450 million in offshore accounts and BAZ has proposed that at least US$200 million be repatriated to Zimbabwe.

Banks hold funds in Nostro accounts to meet clients' cash obligations in foreign countries, but BAZ feels its proposal will not cause any disruptions.

The foreign-owned banks holding huge balances from local depositors' money include Barclays, Standard Chartered Bank, Stanbic and MBCA Bank.

It is believed repatriating the funds would enhance liquidity especially at a time the central bank is financially incapacitated to help as lender of last resort.

BAZ has already held meetings with President Mugabe, Reserve Bank of Zimbabwe Governor Dr Gideon Gono and Finance Minister Tendai Biti over the issue.

Efforts to get a comment from the president of BAZ, Mr John Mushayavanhu, were fruitless yesterday as his mobile phone went unanswered. However, sources said the proposals have been approved by the authorities in principle and it was a matter of time before the action plan is implemented.

"The four big foreign-owned banks hold more than US$450 million in Nostro accounts and we said the money should be repatriated to improve liquidity. We did not say they should bring back all the money, but we said they could only bring half the money and that will make a huge difference," said a source.

While the banks take deposits from locals the funds in the Nostro accounts are used in productive and economic activities of the foreign countries.

BAZ has also proposed reintroduction of treasury bills and other financial instruments such as Negotiable Certificates of Deposits to facilitate interbank lending.

Presently, the banking sector has no security against which they can borrow and lend money at no risk in an economy buckling under liquidity constraints.

But for the proposals to work effectively BAZ proposed recapitalisation of the Reserve Bank of Zimbabwe to enable it to carry out its lender of last resort function.

The banks' lobby group also wants the central bank to convert money owned to banks for statutory deposits to be converted to NCDs, which banks would then use to borrow either from each other or the central banks.

Financial institutions have also proposed a framework that compels banks with excess liquidity to extend a helping hand to their peers facing shortfalls.