THE Reserve Bank this week forced the lock on banks with a fresh seven-year bond raid and increased holding thresholds for the five-year Financial Sector Stabilisation Bonds (FSSBs) which mopped up $65 billion
from the market on take-up last week.
The new bonds, whose take up date is November 17, will mop up over $130 billion from the market, while the additional thresholds for FSSBs will take up about $30 billion.
This will mean financial institutions will have locked a total of $225 billion in the long-term financial instruments. The financial institutions will be forced to borrow from the central bank at penal rates to fund short-term obligations.
Dealers said the central bank’s initiative, that immediately sent bank treasurers searching for a solution to an imminent funding crisis, was likely to plunge the market into massive shortages ahead of huge maturities in November and December.
The Zimbabwe Independent last week reported that there were growing banking sector fears of a drastic response by the central bank to the FSSBs’ failure to induce calculated market shortages following take up of the bills.
The Reserve Bank said in a note to financial institutions that holding thresholds for the five-year FSSBs had been increased from 10% of the balance sheet size as at September 30 for commercial banks to 15%, and from 7,5% for merchant banks to 12,5%.
Financial houses, building societies and discount houses had their holding thresholds increased from 5% to 10% while asset management firms, which were compelled to hold bonds amounting to 2,5% of their balance sheet sizes, are now expected to increase their holding thresholds to 7,5%.
Commercial banks will be compelled to hold Economic Stabilisation Bonds (ESBs) amounting to 20% of their balance sheets while merchant banks will have to take up ESBs equivalent to 17,5% of their balance sheets. Finance houses, building societies and discount houses will be forced to hold EBSs equivalent to 15% of their balance sheet sizes respectively.
Asset management firms will be required to hold bonds equal to 12,5% of their balance sheet sizes. The balance sheet sizes used for ESBs are as at October 31, while the balance sheet sizes used for FSSBs are as at September 30.
The central bank said it had taken the measures because of the high liquidity levels over the remaining period this year and beyond.