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RBZ makes u-turn

BANKS are in trouble after the Reserve Bank of Zimbabwe this week made a U-turn on measures it introduced to save the sector from collapse after the liquidity crisis that hit the country two months ago.

The central bank told financial institutions on Tuesday night that overnight accommodation rates had been hiked from 1 200% to
4 000% for secured lending while unsecured lending rates were raised from 1 650% to 4 500%.
The punitive rates are meant to mop up excess liquidity which
saw the market having an average surplus of $1 quadrillion over the past seven days.
The measures spell disaster for a sector that has been in turmoil since the beginning of the year, according to economists.
There are fears that there will be a liquidity crunch soon after the elections.
The RBZ also pushed statutory reserve ratios back to 50% barely two months after they were reduced in the first quarter monetary policy to 40% to allow banks some breathing space after a disastrous three months in the banking sector.
The central bank also accused banks of deliberately accumulating surplus.
“All this liquidity lying idle on the banks’ positions could have been channelled towards funding of productive activity in the economy,” said the central bank in a circular to banks.
“With immediate effect, the holding period for the liquidity management bonds has been adjusted upwards, from the current seven days to three months.”
Analysts say the new measures would put banks under pressure.
“Banks will be in a crisis. The excess liquidity was buoyed by huge increases in government and electioneering expenditure which we expect to end this week,” said Witness Chinyama, Kingdom Bank economist.
“The post-election period is likely to coincide with a reduction of government expenditure and the onset of a liquidity crunch of great magnitude.”
The turmoil in the sector has hurt both the banks and clients who have been forced to endure several hours queuing for cash. 
The money market surplus hit $1,5 quadrillion on Thursday last week, and averaged $1 quadrillion this week before the new monetary measures.
However, the surplus dropped to $559 trillion after the RBZ measures were introduced.
Building societies, with poor records in the high-density housing cooperative schemes, will be levied statutory reserves of 40%, up from 10%.
In his last monetary policy presented in January Reserve Bank governor Gideon Gono said the bank had no appetite to inject inflationary liquidity into the system through the accommodation window.
“In order to promote discipline in the banking sector’s assets-liabilities management regimes, all interest for previous accommodations have to be paid in full prior to any new borrowings or rollovers of past loans,” Gono said.
The new monetary measures and the raising of maximum withdrawal limits would fasten the liquidity crunch soon after the elections, Chinyama said.
The central bank plans to review the maximum withdrawal limit from $500 million to $4 billion with  effect from April 4. 
Chinyama said cash movement would be one-way because the negative real interest rates will force depositors to withdraw their cash as soon as the limit is hiked.
“Unless interest rates become very attractive prompting clients to hold their money with banks, banks will be heavily stressed,” he said.
University of Zimbabwe economist, Professor Tony Hawkins said the new measures were an admission of guilt by the Reserve Bank that it has injected excessive liquidity into the economy.
“It is an admission that they injected too much money financing vote expenditure, vote buying and civil servants salaries. They are now trying to avert an almight explosion soon after the elections. Banks will be squeezed,” said Hawkins.
Hawkins said banks would fail to honour their obligations if the Reserve Bank does not intervene soon after the elections.
He accused the central bank of implementing inconsistent policies that have damaged the financial sector. 
“That is the way the Reserve Bank operates, no steady path at all. They lurch from one extreme to another. They are experts at engineering inconsistency. Every move they have made in the past six months has created extreme volatility in the markets,” he said.
Zimbabwe Allied Banking Group economist, Newatiwa Mudzingwa, said the combination of measures introduced by banks would kill all corporate and individual borrowings.
“The cost of borrowing will go up. To avoid the RBZ’s punitive rates, the sector may be forced to depend on inter-bank borrowing at rates of around 3 000%. It means none will be able to borrow or have an appetite to do so,” Mudzingwa said.
Statutory reserves time deposits and buybacks were increased from 35% to 50%. Merchant banks will pay 50% on call deposits while statutory reserves for discount houses were upped from 35% to 50%.
The new measures, if left unchanged after the elections, will mean more trouble for the banking sector which has been advised by the central bank of the decision to suspend and wind down concessionary interest rate facilities on June 30 this year.
The RBZ intends to suspend the Basic Commodities Supply Side Intervention facility while it winds down the Agricultural Support Productivity Enhancement Facility.
The sector fears that the RBZ will garnish accounts of banks with outstanding amounts on the cheap fund.
This would force banks to borrow under the punitive overnight accommodation rates.

Kuda Chakwanda and Paul Nyakazeya

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