23 July 2012

Zimbabwe: Gono to Increase Capital Thresholds

Nyanga — RESERVE Bank Governor Dr Gideon Gono has warned banks to brace for an upward review of minimum capital thresholds when he presents his Mid-Term Monetary Policy Review Statement at the end of this month.

Dr Gideon Gono hinted that he might review upwards the minimum bank capital levels in line with global trends to hedge against the risk of bank failures as happened in other countries.

"I do not want to pre-empt my monetary policy review statement, but there is going to be a capital increase. Brace for some tough times because I want to leave banks on a strong platform never seen before. Adequate capital has become a source of competitiveness," he said.

Currently, commercial banks are required to have a minimum capital of US$12,5 million, merchant banks US$10 million and asset management companies US$500 000. As of June 2012, 23 out of 24 operational banking institutions (excluding POSB) were in compliance with the minimum capital levels while all asset management firms were compliant.

Dr Gono was addressing the 43rd edition of the Institute of Bankers of Zimbabwe Winter Banking School in Nyanga.

He said adequate capital served as the last line of defence for depositors in the event of bank failures. Risk of failure remains inherent in the sector, as affirmed by problems that forced Genesis to surrender its licence and saw Interfin being placed under curatorship.

Dr Gono, in the last 16 months of his second term, has said he wants to leave the sector in a stronger state than most countries in Africa, except (probably) South Africa and Nigeria.

"We want a much stronger environment where banks can do more to support industry and also do greater business. We want stronger financial institutions that can withstand any shocks," he said.

He said banks could merge to meet the new capital thresholds as "peace and stability in the banking is what we require for more revenue and economic stability".

"When you borrow, you are able to borrow in line with your capital levels. Your overheads (when merged) will be spread out and you won't need two Mercs for CEOs," he said.

The dynamic nature of the financial landscape, regulatory requirements, increasing competition and economic uncertainties have all placed pressure on banks to be adequately capitalised.

Dr Gono issued a stern warning to the bank chief executives to urgently lower bank charges as they were hurting ordinary users of the banking system, especially low- income earners.

"You have a gun-toting governor who wants to make sure that by the time the gun is taken away (from him), the job would have been done. I urge banks to lower their charges," he said.

But bankers have often argued that high charges were a reflection of "little volumes", depriving them of sufficient revenue to meet the ever increasing and high cost of operations.

Dr Gono bemoaned a situation where, for instance, civil servants earning about US$250 a month lost up to 14 percent of their salary to charges after just two withdrawals on their accounts.

He said banks should swiftly move to lower charges to attract more deposits.

Most banks are making a significantly higher proportion of the revenue from fees and charges as opposed to standard practice, where most of their income should come from funded income.

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