Time Bank offers govt US$5 billion facility
http://www.theindependent.co.zw/
Friday, 15 July 2011 08:13
Reginald Sherekete
TIME Bank of Zimbabwe Ltd has submitted an innovative proposal for a US$5
billion syndicate loan facility to government to pay restive civil servants
and settle Zimbabwe dollar deposits trapped in the financial system.
The bank, which has re-invented itself from being a commercial bank to an
investment bank, submitted the proposal to the Ministry of Finance last week
on the strength that the facility would resolve some of the country’s
multifaceted economic challenges arising as a result of the introduction of
a multi-currency system in February 2009.
The 25-page proposal in the possession of the Zimbabwe Independent was sent
to Finance minister Tendai Biti’s office and copied to Nelson Sambureni, the
chairperson of the National Joint Negotiating Council. The council comprises
of government proxies and representatives from all the civil servants’
unions.
The proposed syndicate loan is based on the creation of what Time Bank
called the 4th money (near money), which is part of the proposed M4 category
of money. The 4th money created by the bank will be additional money supply
from intended time deposits and will be linked to gilt-edged bonds offered
by government on the back of the loan. Technically, 4th money is the
securitised credit to government which is converted into time deposits with
banks.
Currently, Zimbabwe has three distinct categories of money — M1 (liquid
money comprising notes, coins plus all demand deposits), M2 (comprising all
the elements in M1 plus all other short-term and medium-term deposits with
banks with a tenor of less than 90 days) and M3 (combination of Ml, M2 plus
all long-term deposits with banks with tenors less than six months).
M4 will utilise the function of money as a store of value and standard of
deferred payments much more than its function as a medium of exchange.
The syndicate loan targets payment of better salary increases across the
board to the country’s over 220 000 civil servants over a two-year period as
well as the settlement of Zimbabwe dollars deposits that were trapped in the
financial system when the country’s economy migrated into a multi-currency
regime.
According to the bank, the objective is to competitively remunerate the
civil servants without recourse to the risk-averse multilateral lenders and
the facility would go a long way in lessening the government’s burden.
Civil servants have since dollarisation been threatening to strike over poor
salaries, averaging about US$150 per month, US$350 less than the poverty
datum line. Government has been pleading bankruptcy, saying its revenues
were inadequate to meet the workers’ otherwise genuine demands.
The proposed syndicate loan, if accepted, would rope in government, a
syndicate of banks led by Time Bank, Zimbabwe dollar depositors and civil
servants.
Under the loan, the supplier of goods or services becomes the creditor or
lender and the resultant supplier credit is securitised. The supplier credit
loans are mobilised from suppliers of goods and services, including
suppliers of labour services and such loans are then advanced to government.
Time Bank will act as a lead bank and mobilise participating banks to
securitise the government debt and trade it on the inter-bank market,
thereby improving liquidity on the inter-bank market, which is currently
depressed.
To activate the process, according to Time Bank, the civil servants or the
Zimbabwe dollar depositors would be required to open a time deposit account
with any of the participating banks.
After a syndicate loan has been signed, the Zimbabwe dollar depositor or the
civil servant would have his/her account credited as part of the settlement
plan. The said credit would constitute disbursements to which the government
will acknowledge its indebtedness by issuing Promissory Notes (Treasury
Bonds) physically or electronically to Time Bank.
Inadvertently, the syndicate loan becomes the financiers while the
government becomes the debtor. In other words, the government would have
fully honoured its obligations to the civil servants and Zimbabwe dollar
depositors once this has been done and will now be indebted to the
syndicate.
The terms of the syndicated loans include a tenor period of 10 years with
interest payable half-yearly at an interest rate of 8% per annum. The loan
is subject to an arrangement fee of 2% and an annual syndicate management
fee of 0,5%.
A sinking fund will be set up by government with the lead bank where
deposits will be made into the account over a 10 year period in preparation
for settlement of the 10 year treasury bills/ bonds. The fund will earn
interest of 5% per annum and can be used to redeem TBs should a holder opt
for early payment.
Civil servants or the Zimbabwe dollar depositor would be able to withdraw
from the facility as and when cash becomes available at each bank. But
pending such withdrawal, the beneficiaries would earn a 5% interest per
annum on their balances.
The bank said the syndicate loan is the only practical solution towards
rewarding civil servants as well as restoring property rights of people who
have not been paid their Zimbabwe dollar deposits in banks.
“In other words, the solution restores the property rights of big and small
investors, including ordinary people who may be vulnerable during the
implementation of various economic measures. Hence the solution improves
confidence in the banking sector and the country in general,” the bank said
in its executive summary.
“In the final analysis, it may result in more cash circulating in the formal
economic sectors as ordinary people deposit more money in banks instead of
keeping it in the informal sector.”
The bank described the syndicate loan as feasible, affordable and
appropriate innovation that can stimulate the country’s economy.
“People who can supply their goods and services on credit, in an illiquid
environment are the source of economic turnaround, and the syndicate loan
harnesses such efforts by ordinary people, ordinary creditors, into a big
positive economic force,” said the bank as part of its recommendation.
In order to avoid the emergence of a parallel market, Time Bank proposed
that the resultant treasury bonds should be issued to banks only and they
should not be issued to non-banks or members of the public.
Time Bank said the loan will enable growth with equity. Civil servants, the
bank said, could use their time deposits as security for personal loans.