The Reserve Bank of Zimbabwe has set the tone for economic recovery after unveiling a set of financial sector policies which are meant to strengthen the banking sector while at the same time addressing the sector's vulnerability.
RBZ governor Dr John Mangudya in his maiden Monetary Policy Statement under the theme, "Back to Basics" chronologically analyses the causes and effects of the economic challenges that are besetting the economy and comes up with a wide range of policy measures that should help resuscitate the economy.
He said sustainable growth will only come if the country identifies and works around quick wins or low hanging fruits spelt out in Zim-Asset.
"Enhancement of production through quick wins would need the nation to embrace the philosophy of building around the operating companies and not mending what is not broken. This is necessary for the quick recovery of the economy," said Dr Mangudya.
The Governor announced the setting up of a three-tier system when considering minimum capital requirements. Under tier 1, which will comprise large commercial indigenous banks and all foreign banks, the minimum capital requirement currently at US$25 million would rise to US$100 million.
Under tier 2, minimum capital requirements will remain at US$25 million by 2020 for the rest of the commercial banks, merchant banks, development banks and finance and discount houses. Tier 3 will apply to deposit-taking micro-finance banks with a required capital level of US$7,5 million by 2020 from the current US$5 million.
Canada classifies banks in three categories with the first category being Canadian-owned banks, the second being subsidiary of foreign banks, and the last category being foreign banks which are allowed to do business in Canada. This has made Canada one of the few countries with a stable banking system in the world.
As at June 30 2014, a total of 14 out of 19 operating banking institutions (excluding POSB) were in compliance with the prescribed minimum capital requirements. Four banks are facing liquidity challenges. These are Metbank, Allied Bank, Tetrad and AfrAsia. On aggregate, core capital for the banking sector amounted to US$753,09 million as at 30 June 2014.
However, the level of non-performing loans has risen to 18,5 percent as at June 2014 from 15,9 percent in December last year. To that effect the RBZ will establish a national special purpose vehicle called the Zimbabwe Asset Management Company (ZAMCO) to address the toxic assets bedevilling the sector. "The concept and establishment of ZAMCO has already been approved by Cabinet."
ZAMCO will be funded by a combination of non-funded lines of credit, new inflows, long-term bonds and treasury bills. NPLs in an amount of US$45 million have already been acquired by ZAMCO from three banks as at 15 August 2014.
The Central Bank will also establish a credit reference bureau for effective financial information-sharing to minimise credit risk financial institutions continue to face.
On bank charges, Dr Mangudya said the Central Bank, in consultation with the Bankers Association of Zimbabwe, had formed a forum that shall meet on a quarterly basis to review bank charges, interest rates and credit reference system. The forum replaces the MoU that used to be there between BAZ and the RBZ to address similar issues.
Dr Mangudya also unveiled measures to buttress the multiple currency system as clearly spelt out in Zim-Asset. The Central Bank will import rand coins and special coins whose value is at par with the US cents to alleviate the lack of change within the economy.
"We will also mobilise financial resources to support the economy through enhancing gold production and for the lender of last resort function."
The Central Bank also announced that the interbank market supported by the Afreximbank will commence between the end of August and mid-September.
The RBZ has also provided amnesty to previous offenders of the Exchange Control Policy to trade market discipline and self-regulation.
"This is necessary to ensure that going forward market participants start on a clean slate and that going forward the bank shall be imposing penalties for non-compliance with policy."
Dr Mangudya also reviewed the threshold of offshore loans to be approved at the banks' level to US$7,5 million from US$1 million and the Consolidation and Streamlining of the External Loans Co-ordination Committee and the Exchange Control Review Committee to enhance efficiency.