FEARS of a collapse in the multi-billion dollar financial services sector mounted yesterday with reports that a number of locally-owned banks and asset management companies are battling for sur
vival as Reserve Bank governor Gideon Gono cracks down on institutions engaged in shady dealings.
High-level sources said banks and asset management firms -some of which are used as conduits for money-laundering activities and speculative investments – are struggling to cope with new regulations ushered in by Gono’s recent monetary policy statement.
“Most of the locally-owned banks are facing a serious liquidity crisis and bank managers have been holding emergency meetings, including on Christmas day, since the monetary policy statement was announced to find ways of surviving in the new environment,” a source said.
“Gono’s threat that the curtain will soon come down on the era of the proliferation of weak, poorly-managed financial institutions dependent on cheap and unlimited central bank credit was real.”
Sources said most banks that have low liquidity levels, in an environment of hyperinflation (620%), were left exposed and scurrying for financial cover after Gono demanded urgent recapitalisation to take into account rising inflation, which has eroded the institutions’ shaky capital positions, and market risk.
Gono said in his monetary policy statement on December 18 that banks would beginning this month be expected to adhere to the New Capital Accord, also known as Basel II, which seeks to align regulatory capital requirements with economic principles of risk management.
New capital level requirements and allocation of outlay for market risk will be issued this month and strict compliance will be expected by September 30.
“A good number of the banks are most unlikely to respond positively to the new rigorous measures or meet new requirements on capital levels,” a source said.
“Banks are now panicking. They are selling their properties and foreign currency reserves to improve their liquidity and raise their capital levels.”
Several banks are understood to have off-loaded the United States dollar onto the market in the past few days, which is why the parallel market exchange rate for the greenback has gone down.
The US dollar has dramatically crashed from US$1:$6 000 to US$1:$4 500 in the past couple of days.
Sources said some bank managers who had taken advantage of cheap funds available before interest rates skyrocketed are now selling their properties, including cattle on their farms, to meet their financial obligations.
Some financial institutions reported to be already in serious trouble include Trust Bank and ENG Capital. ENG directors were said to be on the run as a result of problems engulfing their financial services concern. The firm is understood to be facing a liquidity crunch of between $70 billion and $80 billion.
Creditors are said to have pounced on ENG, seizing the firm’s property with one leading bank grabbing vehicles and shares which the company holds at a local commercial bank. ENG is failing to meet financial obligations to investors and creditors.
Trust, recently defrauded of $7 billion, is understood to be facing a major liquidity crisis. There were reports the RBZ had given the bank an $80 billion lifeline on condition that the central bank would oversee the disposal of some of its assets to finance the shortfall, which runs into billions.
Trust has confirmed it has been affected by the prevailing general liquidity crisis in the market but denied speculation that it was under curatorship, saying “the bank’s operations and liquidity position can be independently verified with the relevant regulatory authorities”.
Asset management companies, some of which are being used to siphon depositors’ funds, are also in trouble and pose a serious threat to the stability and soundness of the financial system.
Some asset management firms plunged into crisis by using investors’ money to buy fixed assets that cannot be readily converted into cash when the investors’ funds reach maturity, leaving them unable to meet their financial obligations. Some of the investors’ money was siphoned to buy luxurious vehicles for directors and senior managers.
Gono has said he was aware of the shady operations of asset management firms, which were supposed to re-register with effect from yesterday.
“The underground nature of some asset management companies is evidenced by the fact they do not even have physical addresses or working contact phone numbers,” Gono recently said, “which makes it all the more difficult to gather information about them.”