RESERVE Bank of Zimbabwe (RBZ) governor Gideon Gono this week sought to gain the confidence of distrustful financial sector executives by extending a raf
t of concessions to the banking sector, amending US dollar-linked capital requirements and further reducing statutory reserve ratios.
Banking sector sources said Gono, who held a meeting with bank chief executives on Wednesday, revised earlier policy announcements forcing financial institutions to match capital levels with prescribed United States dollar equivalents at exchange rates ruling at any given period.
This meant that the capital levels had to be continually adjusted in line with the depreciation of the defenceless local currency.
The sources said banks will now have to match their capital levels with prescribed US dollar equivalents at the current exchange rate, and will not be compelled to adjust the levels upwards should the local currency depreciate.
It is widely expected that Gono will devalue the dollar when he makes his monetary policy review or put in place measures that would allow the local currency to depreciate on the interbank market, where rates have remained almost unchanged since his policy statement in January.
The sources said the reduction in the statutory reserve thresholds follows a similar measure three weeks ago made by the central bank to curtail a financial sector crisis first reported by the Zimbabwe Independent in May.
Another reduction in statutory reserves thresholds was made on June 19.
High statutory reserve ratios put in place earlier this year had pushed banks, mainly the top five commercial banks, to the brink of closure as they were effectively paying out 58% of all their deposits to the RBZ without earning interest.
Of the balance from the deposits, 76% was being locked into two-year treasury bill (TB) instruments with poor yields.
The central bank has since abandoned the penal two-year TBs, and hiked yields on those already on financial institutions’ portfolios to curtail bank failures.
During his meeting with bankers, Gono reportedly announced that statutory reserve ratios for all classes of deposits would be further reduced by 2,5 percentage points.
Gono earlier this month reduced statutory reserve ratios for commercial and merchant banks from 50% on demand or call deposits to 47,5% and from 40% on savings or time deposits to 37,5%.
Statutory reserve requirements on demand and time deposits are now pegged at 45% and 35% respectively following Wednesday’s decision.
Another reduction in statutory reserve ratios had been made on June 19, and Gono had indicated then that he deemed the measures to be “critical for strengthening financial stability” in the banking sector.
A source said Gono had also requested bankers to assess the impact of removing three digits from the country’s currency after the bankers said they could be forced to draw off huge sums of money to replace software because current software could not accommodate the high number of digits on the country’s currency.
The source said Gono had during his Wednesday meeting with bankers displayed a “highly conciliatory tone” to sector players he had hounded when he took charge of the central bank over two years ago.
“He seems to now want to carry the bankers with him,” a source said.
Gono’s concessions to bankers are expected to form part of wide-ranging monetary policy measures expected before the end of this month.