10 February 2013

Zimbabwe: RBZ Proposes Assessment of Banks

THE Reserve Bank of Zimbabwe (RBZ) has proposed the assessment of banks by credit rating agencies as the regulator moves to align local institutions to international trends.

A credit rating is a comprehensive tool for assessment of an obligor's creditworthiness, reliability of its debt obligations and for establishing the fee for relevant credit risk.

RBZ governor Gideon Gono said the central bank would soon announce the accredited rating agencies.

"As provided in our regulation, banking institutions should subject themselves to annual external credit rating assessments by Credit Rating Agencies accredited by the Reserve Bank," Gono said.

"This is something we would like to see and it can happen next year."

The world's top three credit rating agencies include Standard & Poor's Moody's and Fitch.

The move, a first for local banks, is set to reduce the cost of money on lines of credit from international financial institutions badly needed due to the liquidity constraints obtaining on the local market.

Due to the short term nature of deposits, local banks have to look offshore to get lines of credit.

However, banks have been getting the money at a high cost due to the perceived country risk profile.

Analysts say assessment of banks by agencies would help in coming up with the right price for the lines of credit.

Credit ratings can also be used to project the health of the economy as the banking sector is a vital catalyst in the development of the economy.

Gono said the ratings for banks were part of policy measures designed to attain strong and reputable institutions.

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