31 January 2014

Zimbabwe: Monetary Policy Statement Inspires Confidence

THE Monetary Policy Statement presented by acting Reserve Bank of Zimbabwe governor Charity Dhliwayo on Wednesday sent out, by and large, all the right signals in a market desperate for a measure of confidence.

If implemented to the letter and spirit, this policy should inject the much-needed confidence in the financial sector, which can be used to gauge the health of the economy in general.

The financial sector has been riddled by a plethora of problems ranging from alarming levels of insider and non-performing loans to the closure of banks which have left thousands of depositors stranded, leaving confidence at an all-time low.

Dhliwayo's plan to introduce criminal as well as civil liabilities for any shareholder, director or senior manager of banking institutions found to have acted negligently or fraudulently, resulting in loss of money by depositors, is most welcome, if not long overdue.

For far too long, depositors have had to bear the brunt of irresponsible and errant bank executives. It is such a travesty of justice that Interfin Bank depositors, which went under curatorship in June 2012, have gone for more than a year without accessing their hard-earned cash.

The indictment of rogue elements in the system will send a strong message that graft will not be tolerated and bring relief to long-suffering depositors.

The proposed establishment of a commercial court will also help expedite commercial and banking-related cases. The slow pace in the adjudication of commercial and banking-related cases has been a bane to the sector. The sooner this is implemented the better.

Dhliwayo should also be credited for putting her foot down on insider loans, a development that has spawned the increase in non-performing loans. She declared that no bank will grant loans to insiders and related interests, while also stopping the rolling over of existing insider loans.

Out of a total of US$175,3 million in insider loans, a whopping US$117,4 million or 66,97% are non-performing loans. Against such a background, the decision to bring to a halt all insider loans was long overdue. It is our hope that penalties against those who violate these measures will prove sufficiently deterrent.

Another encouraging aspect of the policy is the decision to maintain capital thresholds as at December 2012 levels, and the extension of the capital threshold deadline from 2014 to December 2020.

Banks are still reeling from a stifling liquidity crunch and the decision to maintain threshold levels and extend deadlines will ensure they do not suffocate under the demands of unrealistic capital requirements.

However, the aspect of implementation is pivotal if the monetary policy statement is to be fully effective. Numerous government policies are gathering dust on the shelves, abandoned without implementation despite bearing well thought-out proposals.

This partly explains why the country finds itself in the doldrums it is in today. The time for action is now.

All in all, Dhliwayo seems to be the governor the market needs.

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