Minister Biti: Press Statement on Improving Financial Market Liquidity
IMPROVING FINANCIAL MARKET LIQUIDITY
PRESS RELEASE BY HON. T. BITI (M.P.)
MINISTER OF FINANCE
1. Introduction
1.1. In line with commitments outlined during the pre-Budget consultative
process and in my January 25, 2012 Press Statement, Treasury will
periodically be communicating on some of the major developments within the
economy.
1.2. A major challenge I highlighted on January 25, 2012 was the on-going
liquidity challenges being experienced in the financial system and
throughout the entire economy.
1.3. While most of the measures I announced in the January 25, 2012 Press
Statement and complemented by the Reserve Bank Monetary Policy Statement of
January 31, 2012 are beginning to bear fruit, it is necessary that these be
buttressed by additional measures.
1.4. Stakeholders would have witnessed notable improvement in the processing
of RTGS transactions throughout the financial system.
2. Bank Deposits
2.1. In its Monetary Policy Statement of January 31, 2012, the Reserve Bank
reiterated the need to ensure liquidity and fluidity in our domestic
financial system.
2.2. As part of dealing with this, it has become necessary that we address
this issue in support of boosting domestic market liquidity and lending to
the productive sectors of the economy.
2.3. In doing this, Government and the Reserve Bank will remain fully
cognisant of the need to ensure that the capacity of our banks to deal with
their day-to-day international payment obligations, and ability to take
positions in international markets is preserved.
2.4. Hence, dispensations will be given to allow banks’ Nostro Account
balances to meet commitments towards meeting such obligations as lines of
credit, trade and project finance support.
2.5. After consultations with the Bankers Association of Zimbabwe,
Government and the Reserve Bank concluded on the need for the repatriation
of all other Nostro Account balances in excess of banks’ needs, pending
international payment obligations and for the purposes of taking positions
in the international market.
2.6. This does not, however, affect the existing liberalised exchange
control policy.
2.7. With effect from March 1, 2012, banks will, therefore, be required to
maintain in their Nostro Accounts a maximum of 25% of their balances
off-shore.
2.8. The maximum rises to 30% from June 1, 2012. This would also be in
acknowledgement of the absence of a prudent statutory liquidity ratio.
2.9. Any amounts in excess of these thresholds will have to correspond to a
bank’s demonstrable pending international payment obligations.
3. Banks’ Statutory Reserves owed by the Reserve Bank
3.1. Stakeholders will recall that in my Press Statement of January 25,
2012, I advised that, as part of the measures in support of improved market
liquidity, Treasury would issue Discountable and Tradable Instruments to
willing participant banks against Reserve Bank Statutory Reserve liabilities
amounting to US$83.583 million.
3.2. The issuance of discountable paper instruments against the Reserve Bank
Statutory Reserve liabilities is against the background of our limited
fiscal space.
3.3. The maturity of the Instruments will range over 2 – 4 years as
indicated in the Table below: –
Description Amount (US$)
Tenor Interest Rate
Per Annum
30% of Outstanding balance 25 million 2 years
(1 Jan 2012 – 31 Dec 2013)
2.5%
30% of Outstanding balance 25 million 3 years
(1 Jan 2012 – 31 Dec 2014)
3%
40% of Outstanding balance 33.6 million 4 years
(1 Jan 2012 – 31 Dec 2015)
3.5%
3.4. The Instruments will have the following features: –
• Prescribed asset status;
• Liquid asset status;
• Half yearly coupon;
• Tax exemption;
• Tradable; and
• Lender of Last Resort security status.
3.5. The Reserve Bank already allows banks’ Statutory Reserve balances to
count towards the capital adequacy requirement.
3.6. Institutions not willing to participate in the above Scheme will have
the option of being issued with 15 year Bonds at 3% per annum.
3.7. Treasury will immediately establish a Sinking Fund to cater for
servicing of interest payments and maturities.
4. Infrastructure Development Bonds
4.1. I have already alluded to the challenges on the Budget with regard to
meaningful interventions towards supporting infrastructure rehabilitation
and development.
4.2. The large infrastructure funding requirements cannot be met from the
current levels of fiscal revenues. This is more so, given the
disproportionate demands on Government arising from both discretionary and
non discretionary recurrent expenditures.
4.3. However, the state of some of our infrastructural facilities requires
or calls for immediate interventions.
4.4. Hence, notwithstanding the prevailing challenges in the financial
system, Treasury will be issuing Infrastructure Development Bonds to
complement Budget resources set aside for the financing of the
rehabilitation of infrastructure.
4.5. Given the need to abide by our cash budgeting principles, the
Infrastructure Development Bank of Zimbabwe will be mandated to issue
Infrastructure Development Bonds to the tune of US$50 million.
4.6. The Infrastructure Development Bonds to finance identified commercially
viable quick win priority infrastructure projects will have the following
features: –
• 5 year tenor;
• 10% interest rate per annum;
• Government guarantee;
• Prescribed asset status;
• Liquid asset status;
• Half yearly coupon;
• Tax exemption;
• Tradable; and
• Lender of Last Resort security status.
4.7. A Sinking Fund will also be established to facilitate interest and
principal payments.
5. Lender of Last Resort
5.1. With regards to the build up towards the US$100 million Lender of Last
Resort Facility at the Reserve Bank, in my Press Statement of January 25,
2012 I announced the provision of an additional US$20 million to the initial
US$7 million.
5.2. I am pleased to announce that Treasury should be able to disburse this
US$20 million during the course of the coming week.
5.3. Treasury is earnestly working with local and international financial
institutions to finalise the mobilisation of the balance of US$73 million.
5.4. Once an agreement has been reached, I will announce the operational
framework for the disbursement of these funds.
6. Cash Withdrawal Limits
6.1. Stakeholders will note that both myself in my Press Statement of
January 25, 2012 and the Governor of the Reserve Bank in his Monetary Policy
Statement of January 31, 2012 had instituted measures with regards to cash
withdrawal limits as part of our efforts to deal with some of the liquidity
challenges in the banking system.
6.2. I have already alluded to some of the positive effects the measures
that I announced and those that the Central Bank announced are having with
regards to the improving liquidity situation in the overall financial
system.
6.3. Mindful of this, Government has noted that we move with circumspection
with regards to the restrictive limits on withdrawals, that way also
avoiding inculcating cultures that could see some persons shunning the
banking sector.
6.4. In this regard, the Reserve Bank will, therefore, be reviewing the
policy of limiting cash withdrawals with immediate effect.
7. Withdrawal Notices
7.1. In line with the improving liquidity situation, the Reserve Bank will
also be reviewing the Withdrawal Notice Requirements that would not be
deemed in line with support for orderly business and commercial
transactions.
7.2. Stakeholders would, however, need to note that such reviews will be
consistent with our regional and international obligations towards money
laundering and countering the financing of terrorism.
7.3. With regard to Government transactions, Treasury will, however,
continue to coordinate with line Ministries, also in support of orderly
financial transactions within the banking system.
8. Plastic Money
8.1. In order to complement the above measures meant to support improved
liquidity in the market, it will be necessary that businessmen and the
general public broaden use of plastic money and that way reducing reliance
on cash.
8.2. Government is, in consultation with the Reserve Bank and the Bankers
Association, considering introduction of measures and fiscal incentives
deemed necessary to promote broader use of plastic money.
9. Bank Accounts
9.1. Furthermore, all tax-paying traders and businessmen are being
encouraged to open accounts with banks through which they will conduct their
financial and tax transactions.
10. Financial Sector Legislative Reforms
10.1. In order to strengthen and deepen the financial sector, Treasury, the
Reserve Bank, the Insurance and Pensions Commission and the Securities
Commission will be reviewing the existing legislation governing the various
financial sub-sectors.
10.2. This review will cover the following legislation:-
• Banking Act;
• Securities Act;
• Microfinance Bill;
• Insurance Act; and
• Pension and Provident Funds Act.
10.3. The review of the Banking Act will focus on capital adequacy of banks
and governance deficiencies which have characterised the banking sector.
10.4. Notable examples include the need to ensure that shareholders have no
role to play in the management of financial institutions.
10.5. This limits the prevalence of incidences of insider loans, abuse of
depositors’ funds and conflicts of interest.
10.6. The review on capital adequacy requirements should result in
streamlining of the number of banks operating in the economy through mergers
and the injection of new capital by investors.
11. Banking Sector Mergers
11.1. In its Monetary Policy Statement of January 31, 2012, the Reserve Bank
indicated that 20 of the 25 operational banking institutions comply with the
capital requirements. It is regrettable that 5 banks still remain
under-capitalised in spite of moving the deadlines for compliance several
times.
11.2. Given the importance of having a strong and secure banking sector that
is immune to systemic risk, I have mandated the Reserve Bank to develop a
framework for mergers between the banking institutions.
11.3. Modalities of this Framework will be announced in due course.
12. Conclusion
12.1. The above measures should significantly improve and alleviate the
existing market liquidity challenges, and I should be updating stakeholders
of any major developments.
Hon. T. Biti (M.P.)
MINISTER OF FINANCE
15 February 2012