THE recent developments in the ongoing foreign exchange inter-bank rate could be a reprieve for most banks that are currently raising minimum capital requirements before the month end amid fears that this could mark the dearth of activity on the official foreign exchange market, analysts have said.
At the official rate 15 registered commercial banks were as of yesterday required to raise about $1,68 quintillion (18 zeros) ($16,8 billion revalued) to meet the capital levels compared to over $10 quintillion using the parallel market cash rate.
Meanwhile impeccable sources who spoke to this paper this week revealed that newly established commercial bank, TN Financial Holdings has also managed to raise the mandatory capital requirements.
Last weekend the foreign currency rates plunged to record levels following the upward review of daily cash withdrawals and speculation about an imminent collapse on the adjourned inter-party talks seeking a political solution to the countryâ€™s decade-long crisis. The official inter-bank rate however did not respond to this abrupt surge in rates.
Microfinance institutions, which the Reserve bank recently said were facing “viability problems”, could however fail to comply with the US$5 000 (or equivalent on the inter-bank rate) threshold. Official statistics indicate that more than half of the registered money lending institutions have already closed.
According to ZB group economist, Best Doroh, most banks will meet the August 31 deadline despite unprecedented movements on the parallel market.
“The inter-bank rate was not affected by recent movements on the parallel market,” Doroh said. “Unless there are rapid movements on the inter-bank rate most banks are likely to meet the capital requirements.”
Zimbabwe Allied Banking Group,chief economist David Mupamhadzi however said banks would require more money to meet the capital requirements, which might affect their liquidity due to increasing parallel market rates.
“The inter-bank rate is going up, but the banksâ€™ abilities to mobilise foreign currency is limited because of higher rates on the parallel market,” he said.
This disparity in foreign exchange rates, analysts warned marked a significant decline of foreign currency inflows on the formal market. Sources said the central bank is now effectively controlling the exchange rate float as indicated by demands by the bank to get a “justification” on the opening exchange rates of the day. Before this alleged move the inter-bank rate was changing at an average of 25% per day against major currencies but the rate has since changed to about 10%.
“The movements of the dollar on the inter-bank market will be a reprieve for most banks,” said a bank executive who requested anonymity.
“The inter-bank foreign exchange market is now subdued and inactive. Itâ€™s almost synonymous with the previous arrangement (fixed rate of US$: $30 000 to the US$).
Although banks donâ€™t have balance sheets that match the depreciating exchange rate, many will cross the line by month end. Treasury bills and concessionary facilities are some of their major assets although their rate of return is negligible.”
This position according to the bank executive has forced banks to invest on the property market, although the Reserve bank is on record accusing financial institutions of investing in “illiquid and speculative assets.”
Efforts to get comment from the Reserve Bank and Bankers Association of Zimbabwe president, John Mangudya were in vain.
Last month the central bank announced new capital thresholds for financial institutions indicating that failure by these institutions to meet the requirements could place them under curatorship or mergers. Merchant banks and Building societies US$10 million each while Finance houses and Discount houses US$7,5 million. Asset management companies should raise US$2,5 million.
By Bernard Mpofu