Six banks kicked out of clearing house system

Ngoni Chanakira

AS the new Reserve Bank of Zimbabwe (RBZ) governor Gideon Gono continues to crack his whip against defaulting banks, six commercial banks have reportedly been suspended from the clearing hous

e system.


According to prominent international credit rating agency Global Credit Rating Company (pty) Ltd (GCR) the banks were allegedly suspended after failing to meet their obligations with the RBZ.


GCR managing director Dave King said the concerned banks include Trust, Agribank, Time, Barbican, Century and Metropolitan Bank.

The RBZ had not responded to questions sent to it on the issue on Tuesday but banks contacted said the issue was sensitive.


Late last year, GCR placed all its Zimbabwean bank ratings on “rating watch” as a result of an envisaged severe systemic liquidity crunch. Following this, GCR immediately requested all rated banks to provide it with up-to-date financial data, with specific emphasis on their very latest liquidity positions, so as to better analyse the impacts which the liquidity squeeze is having on individual participants within the banking industry.


According to King, analysis of the data clearly indicates that there has been a major “flight to quality” among depositors, with all five commercial/merchant banks which GCR had previously accorded long-term local currency domestic ratings of A (single A) and higher experiencing significant deposit inflows. These include Standard Chartered, Barclays, Kingdom, Merchant Bank of Central Africa, and CBZ (“Jewel Bank”).


“Most of these banks are now actively discouraging further deposits (either by openly turning-away or by quoting extremely low deposit rates), due to a lack of suitable alternatives for them to place surplus funds,” King said.

“These institutions typically currently reflect cash and liquid assets to total deposit ratios of not less than 75%, indicative of strong liquidity positions. All of these banks, bar MBCA, also currently reflect capital bases which are well in excess of the new minimum capital requirement of $10 billion which will come into effect on September 30”.


King notes that while MBCA’s capital base is currently much smaller than other banks in this rating category, this is reflective of the nature of their business and the soundly structured nature of its balance sheet is evidenced by cash and liquid assets to total deposits ratio in the region of 300%.


At the other end of the scale, King pointed out that as at January 9 there were a total of six banks that had been suspended from the clearing house system due to failure to meet their obligations, namely Trust Bank, Agribank, Time Bank, Barbican Bank, Century Bank and Metropolitan Bank.

King said of these banks, Trust represented by far the biggest threat to the stability of the entire banking system, due to the fact that its asset base had mushroomed to such a significant amount over 2003.


“To place this in context, Trust Bank’s total asset base was $85 billion as at December 31 2002, but by the end of December 2003 it is reported that the group’s total assets were in the region of $800 billion (which would make it the largest balance sheet of all the Zimbabwean bank groups),” King said.

“In this context, it is an extremely important development that on January 9 the Reserve Bank issued a statement confirming that it was satisfied with the serious manner in which the Trust Board was dealing with the crisis and the measures that had been taken”.


The statement reads in part: “The Reserve Bank fully supports these measures and assures the public that it stands ready to augment their efforts by providing the necessary liquidity support in order to strengthen confidence in the institution. The public are therefore advised to conduct their banking business in a calm manner as the situation at the bank is under control.”


King said a further material development was that over the weekend the RBZ advised that it was setting up a “Troubled Banks Fund” in order to ring-fence these banks, and to stop the contagion effect.


Conditions which will be applied to banks accessing this fund include the provision to the RBZ of a comprehensive short-term programme to correct the liquidity challenge, as well as the plans to repay monies received from the Troubled Bank’s Fund. According to GCR, a key positive feature with regards to the longer term future of the industry is the fact that Gono’s policy statement is clearly designed to address some of the “root causes” of the problems affecting the financial sector as a whole. Some significant steps have already been taken (particularly with regards to tightening up regulation and monitoring of the sector, increasing capitalisation and reserving and eliminating the opportunities for “speculative activities”).


“While there is no doubt that it will be an extremely challenging task for the central bank to achieve its stated objectives (including reducing inflation to below 200% by the end of this year and below 100% by the end of 2005), it is recognised that the new governor is a highly-experienced and respected banker,” King said.


Notwithstanding, the Monetary Policy Statement recognises that there must be short-term pain to achieve results.

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