MAJOR commercial banks and other financial houses are facing a critical liquidity crisis largely caused by unlawful speculative investments which are now
threatening to ruin the stricken institutions.
Information gleaned from an array of documents shows the situation has triggered tremors within the sector that was hit by a chain of high-profile institutional collapses in 2004. Cash shortages at the banks have compounded the situation as businesses and individuals are unable to access their money.
Almost all the banks — Barclays, Stanbic, Standard Chartered, CFX Bank, Kingdom, NMB Bank, ZB Bank, MBCA, ZABG, FBC, CBZ, Agribank, ABC Corporation, Genesis, Premier, Interfin and Renaissance, as well as building societies such as CABS, Beverley, FBC BS and Intermarket — are in dire straits.
The banks are facing liquidity problems because they cannot secure cash applications from the Reserve Bank and have failed to pay their statutory reserves to the central bank. Despite the bank printing up to $800 trillion to alleviate the cash shortages, banks are failing to collect their cash requirements due to lack of security.
Banks are facing serious liquidity problems because they have tied up a sizeable portion of their balance sheets in illiquid assets such as shares, properties and foreign currency.
In terms of the Banking Act, it is illegal for banks to buy shares unless they are being held as security for a loan or are owned through swapping debt for equity.
Banks have invested an average of 22% of their total assets in securities. The bank’s securities and investments in financial terms, include $31,1 trillion for Standard Chartered, Stanbic $17,2 trillion, ZB Bank $9,8 trillion, CBZ $17 trillion, Agribank $7,7 trillion, Barclays $21,6 trillion, FBC $17,2 trillion, Kingdom $23,2 trillion, ZABG $8,8 trillion, NMB $6,4 trillion, ABC $17,8 trillion, Premier $8,9 trillion, and Interfin $7,8 trillion or 75% of total assets.
Major building societies CABS and Beverley invested $17,8 trillion and $5,6 trillion respectively.
Due to their failure to convert into cash stocks and other investments, the banks are currently unable to restructure their balance sheets to deal with the liquidity situation. Their troubles were worsened by the current poor performance of the stock market due to the liquidity crisis in the money market and the exchange rate volatility.
Yesterday the market situation remained in significant shortages as most banks still battled to cover clients’ payments. Most financial institutions had exhausted their collateral instruments, making it difficult for them to borrow both in their inter-bank market and from the Reserve Bank.
Cash orders by banks and building societies as of yesterday stood at $37,8 trillion, but banks only collected $22,7 trillion even though the central bank could meet the demand.
But queues for cash in baking halls and ATMs were falling significantly this week as the liquidity situation improves.
However, four banks, POSB, NMB, CFX and Beverley, on Tuesday still owed the Reserve Bank $3,8 trillion for cash collected. Most of the banks early this week failed to collect all the money they had booked with the central bank due to lack of security. On Tuesday Metropolitan, ZABG, POSB and Kingdom failed to fund their cash requirements. On Wednesday ZABG, under mounting financial pressure, applied for $2,5 trillion unsecured accommodation from the Reserve Bank.
Earlier on Monday, five banks, CBZ, Renaissance, Kingdom, ZABG and Genesis had failed to pay statutory reserves. CBZ and Renaissance settled their dues on Tuesday, while ZABG had proposed to raise $3,6 trillion through disposal of 8 550 541 Pearl Properties shares and 5 212 500 ZPI shares. The bank requested $850 billion from the Reserve bank but was only able to fund $200 billion. It also failed to pay statutory reserves of $672 billion on Monday.
Genesis on Monday battled to pay $350 billion to clients but said it would clear the queue for the money by Wednesday. Kingdom had no concrete plan of paying its statutory reserves. Kingdom executives met with CBZ officials on Wednesday afternoon to deal with their problem of settling inter-bank obligations. Kingdom owed CBZ at least $10 trillion.
To show its financial crisis, Kingdom had ordered $4,4 trillion from the central bank but was only able to fund $1,1 trillion. On Monday the bank, whose liquidity problems stem from structural rigidities in the balance sheet, failed to pay statutory reserves of $3,4 trillion.
Barclays, which had been plagued by chronic cash shortages for the past five months due to poor liquidity management, required $4 trillion but only managed to fund $2,3 trillion. Despite the critical situation by Tuesday some banks like Stanbic, NMB, CABS, CBZ, MBCA and Standard Chartered were able to fund and collect their cash.
However, banks continue reeling from liquidity problems and the Reserve Bank has urged them in confidential memos to restructure their balance sheets to address the crisis. Failure to urgently tackle the emergency could result in sector-wide bank collapses.