HomeBusiness DigestBanks sail in choppy waters

Banks sail in choppy waters

Shakeman Mugari

MORE banks could sink after the Reserve Bank of Zimbabwe (RBZ) this week announced a hefty increase in unsecured accommodation rates to deter financial i

nstitutions seeking overnight cover from the central bank.

The RBZ raised unsecured accommodation from 1 100% to 1 500%, an increase of 400 percentage points.

This means that Zimbabwe’s troubled banks will pay heavily if they borrow from the central bank to cover their daily shortfalls. The central bank also tightened procedures for accessing unsecured accommodation funds.

Unsecured accommodation is when a bank gets money from the central bank to cover its daily shortfalls without tendering security for the loan. The daily shortfalls happen when there is a mismatch between a bank’s total deposits and withdrawals.

These measures mean that RBZ governor Gideon Gono will be the only one who can approve accommodation for any bank.

“No bank or institution shall be accommodated, secured or otherwise, without express authority and clearance from the governor,” said an RBZ memo to banks and other financial institutions. The memo said banks will not be accommodated unless they fully explain how they fell short in the first place.

“All motivations for accommodation must be accompanied by comprehensive applications written by the bank’s chief executive officers fully explaining the origins and justifications for the shortfall, supported by documentary evidence,” it said.

The increase in the rate on Wednesday came amidst revelations that most banks were begging the central bank to cover their positions after being hit by a serious liquidity crisis. Most banks have misaligned assets.

Banks fell into trouble after they invested trillions of dollars worth of depositors’ funds in properties, foreign currency and shares.

According to the Banking Act, it is illegal for banks to own shares unless they are being held as security for a loan. The major problem for most banks is that they cannot dispose of the shares because their prices have gone down.

It is equally difficult to dispose of fixed properties and foreign currency, especially after the central bank introduced a tracking system to monitor activities in the banking sector.

An average of 22% of the depositors’ monies held by all financial institutions has been invested in non-core business like shares and properties.

Some of the money was used to buy foreign currency on the parallel market. As of December, about 18,62% of depositors’ funds held by commercial banks was locked up in shares and other non-core investments.

The country’s five merchant banks have a total 31,47% of depositors’ funds locked in shares. The four building societies have poured 19,58% of depositors’ funds into shares and other investments.

By Wednesday evening, eleven commercial banks had managed to get some bail-out from the central bank but only on the secured accommodation basis.

Only Barclays had managed to get unsecured accommodation. The bank borrowed $6,4 trillion (unsecured) and $8,7 trillion (secured).

CBZ borrowed the highest amount with a loan of $17,7 trillion. Stanchart got $17 trillion, FBC $1,4 trillion, Kingdom $6,1 trillion, MBCA $1,1 trillion, NMB $3,6 trillion, Stanbic $5,5 trillion, ZABG $928 billion and ZB Bank $10,6 billion.

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