30 January 2014

Zimbabwe: MPs - a Small Step in the Right Direction


ACTING Reserve Bank of Zimbabwe Governor Dr Charity Dhliwayo yesterday delivered a Monetary Policy Statement that did just enough to address some of the concerns in the banking sector. Zimbabwe has experienced different kinds of banking crises since dollarisation or perhaps even before that. If there was a measure, then it would be correct to say that banking confidence is low.

Although the economy is poised for positive growth under the Zimbabwe Agenda for Sustainable Socio-Economic Transformation (Zim Asset), the following factors militate against confidence in the banking sector; capitalisation pressures which have seen a significant change in ownership for some banking institutions; the large asset-liability mismatch and non-performing loans since 2009 and an inefficient RTGS payment system, which has resulted in the loss of depositor confidence.

The MPS had startling figures with regards insider loans where as at December 31, 2013, the level of total insider loans in the banking system was US$175,3 million (including Interfin). Of these insider loans US$117,4 million (66.97 percent) was non-performing.

That's a high figure by any standard. Criminalising negligence by bankers as well as outlawing insider loans are two measures that will stop the non-performing loans.

Some say it is much more effective than minimum capital requirements adjustments. But the question is how are these loans going to be cleaned up?

Something first needs to be done about the toxic debt setting on most of the banks' balance sheets, and then capitalise the banks. At least it's better that the deadline for the US$100 million capital requirements has been moved to 2020.

This will give time to the central bank and the bankers themselves to clean all that mess, even if it means foreclosure of the issuers of such debt securities so be it. In Nigeria they created AMCON to warehouse bank loans, maybe this could work for us here in Zimbabwe.

At one point international private equity firm GEM put a US$1 billion syndicated facility to enable the State to assume the bank's non-performing loans through the issue of a ten-year bond, we believe Government needs to seriously look into this.

Measures by Government to recapitalise the central bank as well assuming its +US$1 billion debt now enables the bank to execute its mandate without restrictions.

The acting Governor did well by emphasising the restoration of the role of the central bank as Government's banker.

No doubt the central bank has a big role to play in the economy and it has not been able to play that role in the past. We, however, believe the switch of banker of Government from CBZ Bank to the Reserve Bank will see a funding gap at CBZ and possibly the whole financial system.

The question then is will CBZ have adequate capital cover to bridge that funding gap given its huge loan portfolio and the amounts of bad loans it has written off in the past vs. the +US$50million in debt securities it issued that fell due last year or falling due this year.

March is just around the corner and CBZ as a listed entity should be taken to task as to what measures it is taking to avert a liquidity situation at its bank.

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