31 August 2014

Zimbabwe: Mangudya Goes Back to Basics

Reserve Bank of Zimbabwe (RBZ) governor John Mangudya dispatched his maiden monetary policy statement to various stakeholders via e-mails, a departure from what Zimbabweans had been accustomed to in the past 10 years.

There was no gathering in Level Minus One at RBZ -- the venue where bankers would leave trembling after being "skinned alive" during the era of former central bank boss Gideon Gono.

There was no meeting of stakeholders to hear the governor deliver the monetary policy and chart the way forward followed by the endorsements by bankers. No photo shoots!

Gono had popularised the monetary policy statement such that it became more popular than the jingles that extolled the fast track land reform programme.

Mangudya went back to the basics saying the economy needed to stimulate production for economic recovery through pursuing consistent, transparent and predictable economic policy measures.

The tone of the statement was conciliatory as he sought broader support from all stakeholders to steer the economic ship out of troubled waters.

The back to basics principle is predicated on policy clarity, consistency, transparency and predictability, respect for the rule of law, respect and love for each other as patriotic Zimbabweans, respect of the environment and nurturing of positive business culture, Mangudya said.

It is also premised on nurturing productive work ethics and culture to take responsibilities, visible fight against corruption, smuggling and profiteering and inculcating a culture of paying (bills, loans or duties).

Mangudya said the bank was repositioning itself by going back to the core principles or functions of central banking -- banker to government, administrator of the national payment system, regulator of financial institutions, manager of exchange control, supervisor of bank use promotion & suppression of money laundering, lender of last resort and policy advisor to government.

Mangudya brought closure to the banks capitalisation headache by proposing a three tier system in which a bank has to choose a suitable class as per recapitalisation capacity.

Banks in the Tier 1 strategic segment would be required to have minimum core capital requirements of US$100 million by 2020 as previously announced, he said. He said the capital would enable the Tier 1 banks to absorb the risk associated with the scope and complexity of their activities.

The Tier 2 segment comprises commercial banks, merchant banks, building societies, development banks, finance houses and discount houses that will only conduct their core banking activities.

The Tier 2 banking institutions should maintain minimum capital requirements of US$25 million.

Tier 3 segment which has current minimum capital requirements of US$5 million comprises of deposit-taking microfinance institutions.

He said the minimum capital requirements of US$7,5 million by 2020 for Tier 3 takes into account start-up costs such as acquisition of an IT system and establishment of branches.

In an analysis of Mangudya's statement, the Bankers Association of Zimbabwe (BAZ) said the tiered approach to capitalisation of banks was progressive and very important, representing a departure from the "one size fits all approach".

"Zimbabwe requires a variety of different banking institutions playing a symbiotic and complementary role for growth," BAZ said.

"This is a very good development because every banking and financial institution has a role to play in the economy, to contribute towards growth of the economy."

It said the economy was characterised by different segments requiring a diverse range of banking and financial products and services.

Mangudya extended an amnesty to market players who violated the exchange control during the switch to the multicurrency regime from the Zimbabwe dollar era.

He says the amnesty was a critical platform for forging renewed relations with market participants, a "necessary step towards attainment of effective collaboration in the execution of various initiatives aimed at economic reconstruction".

This new thrust, he said, would manifest in the re-orientation of the Exchange Control framework to complement its role of administration, accounting and monitoring of foreign currency transactions in the market with that of facilitating investment and business transactions.

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