2 August 2012

Zimbabwe: Gono Increases Capital Requirement for Banks

The Reserve Bank of Zimbabwe on Wednesday increased the minimum capital requirements for banks to $100 million, a move that some fear will hurt the financial sector.

But central bank governor Gideon Gono said the plan is to create a strong and healthy banking sector. In his monetary policy statement Gono pushed for consolidation, warning that poorly capitalized banks posed a threat to the stability of the financial sector and the economy as a whole.

Gono said the capital requirement for commercial and merchant banks would go up from US$12.5 million to US$100 million; building societies from US$10 million to US$80 million; and finance and discount houses from US$7.5 million to US$60 million.

He gave the banks two years to meet the new capital requirements, and said they must be 75 percent compliant by the end of 2013. Analysts believe the objective of this exercise is for banks to become bigger and stronger, after facing near collapse at the height of the country's financial meltdown because of Gono's kamikaze financial policies.

He was responsible for printing truckloads of worthless Zimbabwean dollars, a situation that led to the record hyperinflationary levels in the country four years ago. Gono has headed the Reserve Bank since 2003, at one time presiding over the world's fastest shrinking economy, with inflation reaching a whopping 500 billion percent.

This led to Finance Minister and MDC-T secretary-general Tendai Biti describing him as the country's number one economic enemy: 'An economic saboteur, terrorist and number one Al-Qaeda who deserves to be shot by a firing squad.'

Lawyer and economic analyst Bekithemba Mhlanga told SW Radio Africa the capitalization increase will make the banks more resilient to economic shocks and enable them play a more active role in supporting economic growth.

'I also think the move will strengthen the financial base of the banks, thereby safeguard the interest of depositors. What the increase does is that banks will have to invest more in the economy, hence making the financial base stronger and safer for depositors,' Mhlanga said.

This year alone three banks linked to ZANU PF officials have been forced to close after abusing depositors' funds. In the last decade a number of banks and financial institutions, faced the same fate after they were looted by people with close links to ZANU PF. These banks included Interfin, Time Bank, CFX, First National Building Society, Zimbabwe Building Society, United Merchant Bank, Universal Merchant Bank and, more recently, ReNaissance Merchant Bank.

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