Biti moves to stabilise banking sector outlined
http://www.theindependent.co.zw/
Friday, 17 February 2012 11:09
Chris Muronzi
FINANCE minister Tendai Biti and Reserve Bank governor Gideon Gono on
Thursday announced reforms which they expect to improve liquidity and
stability in the banking sector, including, among other things, ordering
financial institutions to remit offshore funds and barring bank shareholders
from day to day management positions.
The move to remit funds kept in offshore accounts is meant to address
liquidity problems in the financial sector and the economy at large.
“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,” said Biti.
“The maximum rises to 30% from June 1, 2012. This would also be in
acknowledgement of the absence of a prudent statutory liquidity ratio.”
A Nostro account is an account held in a foreign country by a domestic bank,
denominated in the currency of that country. Nostro accounts are used to
facilitate settlement of foreign exchange and trade transactions.
Biti said amounts in excess of the set thresholds would have to correspond
to a bank’s demonstrable pending international payment obligations.
Allaying fears, Gono said the offshore balances will continue to be eligible
for liquid asset ratio requirements.
Gono cited an improvement in liquidity already, saying the Reserve Bank
would lift the previously announced cash withdrawal limits with effect from
March 1 2012. Banks were encouraged to continuously apply the Know Your
Customer (KYC) principle in order to avoid the abuse of cash. The bank was
further urging the use of plastic money and cheques.
Gono alluded to an improvement in the RTGS where he said average RTGS
balances had maintained a sustained increase from US$91,8 million in
December 2011 to US$119,3 million in January 2012 and further to US$153,5
million for the first half of February 2012. The central bank governor
disclosed that as at February 3 2012 the total banking sector deposits were
US$3,45 billion whilst total loans were US$2,78 billion.
Taking a cue from Biti’s decision to further support the RBZ’s lender of
last resort function, Gono said based on the size of the country’s GDP, it
was estimated that an amount of US$150 million was required for the smooth
functioning of the Lender of Last Resort. Against this background,
government would avail an additional US$23 million by the end of next week
towards the Lender of Last Resort Fund, to bring the total to US$30 million.
Gono said the US$150 million required could not besustained by Treasury
alone given the current challengesfacing government.
Efforts were underway to mobilise additional resources in excess of US$73
million. In this regard, the Reserve Bank would coordinate the establishment
of a Special Purpose Vehicle (SPV) where financial institutions and
otherinvestors will contribute to the Lender of Last Resort Fund.
The SPV would be owned by the contributors who would be shareholdersand will
also be represented in the board running the affairs of the fund chaired by
the Reserve Bank.
Following the resuscitation of the Lender of Last Resort the RBZ was
encouraging banks to improve on the subdued deposit rates currently
prevailing in the market. The RBZ was imploring banks to take a cue from its
Overnight Accommodation rate on the directionof their lending rates.
The RBZ is to also launch instruments to be issued against its statutory
reserve liabilities, with features such as prescribed asset status; liquid
asset status; half-yearly coupon; tax exemption; tradable; and overnight
accommodation status. The paper has varying tenors of between two and four
years and interest rates of 2,5% to 3,5% per annum respectively. Another
option is a 15 year bond at 3% per annum. Treasury willimmediately
establish a Sinking Fund to cater forservicing of interest payments and
maturities, Gono said.
In announcing measures to stabilise the banking sector yesterday, Biti said
the proposed Banking Act review would focus on capital adequacy of banks and
governance deficiencies in the banking sector.He said there was need to
ensure that bank shareholders had no role to play in the management of
banking institutions so as to limit the incidence of insider loans, abuse of
depositors’ funds and conflict of interest.
Biti also said the Securities Act; Microfinance Bill; Insurance Act; and the
Pensions and Provident Funds Act would be reviewed but did not elaborate on
the nature of the changes.
Biti reiterated that banks would be compelled to merge in line with
government’s goal of a strong financial services sector.
“It is regrettable that five banks still remain under-capitalised in spite
of moving the deadlines for compliance several times,” said Biti. “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.”He, however, said the modalities
of mergers framework would be announced in due course.
Meanwhile Biti also announced government would issue infrastructure
development bonds with almost the same features as the treasury bills save
for the tenor, which will be for five years with an interest rate of 10% per
annum.