19 November 2012

Zimbabwe: Biti Blasts Banks

FINANCE Minister Tendai Biti on Friday said Treasury will introduce legal instruments that compel banks to invest a defined portion of deposits in prescribed assets in reaction to their "reluctance" to support Government economic programmes. Despite massive financial obligations Treasury expects to raise a mere US$3,8 billion next year and was upset following banks' lukewarm response to its Treasury Bills, while others snubbed them completely.

Speaking during the Confederation of Zimbabwe Industries post budget workshop Minister Biti said the requirements would come among a cocktail of measures to be enforced through amendments Treasury will effect in the Banking Act.

Incensed by regulatory measures the minister had earlier revealed in the Budget last Thursday that he intended to introduce on various aspects of banks' operations, most bankers snubbed the workshop.

"If you are a bank like Standard Bank, Barclays Bank and operating in an environment like this, you must use your brain, be strategic and take a cerebral approach not the approach of extraction.

"You cannot run a bank like Standard Chartered Bank, with an extraction attitude (that) I can get deposits, invest overseas and move on oblivious to and insulated against the developmental challenges of the country, it does not happen like that," he said.

Labelling the bankers as a bunch of "mafia dressed in suits and ties" Minister Biti said efforts to reach a negotiated solution on issues in the banking sector had failed, hence the need to legislate.

"We are going to amend the Banking Act and impose into the Banking Act section 26 of the Insurance Act.

"Section 26 of the Insurance Act allows us to prescribe insurance assets, so we will prescribe banking assets," he said, adding it was not a first with Zimbabwe, as South Africa had done likewise.

Announcing the 2013 Budget Minister Biti also directed banks not levy charges on amounts below US$800 and to lend all funds received from the National Social Security Authority and Old Mutual Zimbabwe at a maximum 10 percent per annum.

The Finance Minister further directed that banks should reach an understanding with the Reserve Bank of Zimbabwe on a framework for interest rates, bank charges and directed that lending rates be pegged at a maximum 10 percent over a bank's weighted average deposit rate inclusive, of all deposits.

But BancABC group economist Mr James Wadi noted that prescribing one-size fits all for small and big banks would hurt the former, which serve the majority of people in the low-income bracket.

"If you say we (banks) don't charge for any deposits less than US$800, it means small banks become innocent victims of this kind of prescription.

"Maybe we need to engage and say how best we go around this. I have looked at South Africa where they said that 'how do we serve the unbanked'. I think they have come up with that Mzansi account kind of arrangement," said Mr Wadi.

His comments invited the wrath of Minister Biti who retorted demanding to know why banks had not come up with such an arrangement voluntarily.

Banks have been directed to transfer back at least 70 percent of all funds held in nostro accounts, which is money financial institutions keep offshore. Banks are also required to give interest of a minimum of 4 percent on all balances above US$1 000 held in an account for more than 30 days.

Minister Biti said Treasury did not want to go the legislative route, but would do so because of bank's failure to realign to prevailing economic realities.

The minister pointed out that banks would not support Government's recent fundraising initiative, through TBs, yet they were the ones that pressured Treasury to issue the paper when it was reluctant citing the State's already high gearing.

But banks allegedly went as far as the presidium to pressure the Minister of Finance to issue TBs only to spurn the paper when Treasury eventually softened its stance and floated the stock.

He said banks had failed to buy into Government's MTP vision of building a modern and developmental State where they are supposed to play a major role through financial intermediation.

Additional planned reforms in the banking sector would seek to further reduce the overbearing influence of major shareholders and veiling of their identities through vexatious investment holding entities.

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