Zim banking sector vulnerable: IMF
http://www.theindependent.co.zw/
Friday, 29 June 2012 08:41
Chris Muronzi
ZIMBABWE’S financial sector is still vulnerable and needs continued
vigilance, especially given the country’s “destabilising” indigenisation
policy and collapse of banks such as Interfin Banking Corporation and the
closure of Genesis Investment Bank, a report by the visiting International
Monetary Fund team has disclosed.
The IMF team is deeply concerned about the destabilising effect Zimbabwe’s
controversial Indigenisation policy could have on the country’s banking
sector and on investment.
An IMF report seen by the Zimbabwe Independent shows that the fund sees
policy risk stemming from heightened government calls to indigenise the
banking sector.
The IMF team headed by Alfredo Cuevas and comprising Murna Morgan, Christian
Henn, Eliza Lis and Futoshi Narita was in Harare between June 13-27 to
conduct Article IV consultations with the country’s authorities.
The team met officials from government, the Reserve Bank (RBZ) and other
stakeholders.
“A policy risk relates to the potentially destabilising effects of
indigenisation policy on the banking system, as well as its chilling effect
on investment more broadly,” the report reads.
“Other risks stem from fiscal slippages and financial sector instability,
including liquidity constraints and questions over the quality of governance
in small banks.”
The IMF commended efforts to enhance regulatory framework on the part of the
central bank, pointing to the order forcing undercapitalised banks to meet
minimum capital requirements by the end of March 2012 or merge with stronger
banks.
The fund said 12 banks were either below or just above minimum capital
requirement levels as at December 31 2012.
After the collapse of Interfin from non-performing insider loans and its
subsequent placement under curatorship, and Genesis surrendering its
banking licence after failing to meet minimum capital requirements, the IMF
still feels the country’s financial sector remains vulnerable.
“As noted, a number of banks remain barely capitalised, and while several
weak banks have met the minimum capital requirement following capital
injections, credit risks remain high, particularly for smaller banks that
have low capital buffers,” the report says.
The report also notes that asset qualities deteriorated in the last year and
a half — a development the fund says reflects unsound lending practices and
poor risk management. Non-performing loans were at 9% in March 2012, up from
4% in the same period last year with wide variations across the banks.
The IMF report says loan origination from weak banks remained strong, funded
by unstable short-term deposits.
“The serious improprieties uncovered at Interfin would seem to confirm
persistent concerns over the quality of corporate governance in some of the
smaller banks, underscoring the need for active supervision,” the report
says.
While the liquidity situation in the banking sector improved, there was
uneven distribution, the IMF said.
The IMF says rapid credit growth last year saw loans-to-deposit ratios of
banks rising sharply, and a liquidity ratio of 27% at the end of December
2011, with 15 banks below 25% of the prudential liquidity ratio.
The report lauds the central bank’s move to have banks remit offshore funds
held in Nostro accounts, saying the move lifted the prudential liquidity
ratio from 25% to 30% towards the end of this month.
“The government issued bonds in March 2012 to reimburse the commercial banks
for the US$83 million of statutory reserves blocked at the RBZ.
Nevertheless, while the bonds are nominally tradable, their durations (2-4
years) and sub-market interests (3 %) means that banks are holding on to
these bonds, preventing their use as collateral to foster reestablishment of
the Interbank market,” the report says.
The report says there is a need to amend the Banking Act to strengthen the
Troubled and Insolvent Bank Resolution Framework to incorporate swift
corrective actions, and deal with corporate governance deficiencies.
According to the report, an amended Banking Act would be presented to
cabinet by August 2012.
The IMF added that there should a debate on the need to consolidate the
small and weaker banks going forward.