BANKS are reeling from high accommodation rates of 10 000% â€“â€“ secured and 40 000% â€” unsecured by the Reserve Bank which raised the rates to mop up excess liquidity on the money market.
The Reserve Bank last week raised secured accommodation rates from 8 500% to 10 000% while unsecured were raised to 40 000% from 9 500%.
Banks are paying heavily when they borrow from the Reserve Bank to cover their daily shortfalls.
The Reserve Bank last week reinstated the use of the Real Time Gross Settlement (RTGS) system and has since tightened procedures for accessing unsecured accommodation funds.
Unsecured accommodation is when a bank gets money from the Reserve Bank to cover its daily shortfalls without tendering security for the loan.
The daily shortfalls happen when there is a mismatch between a bankâ€™s total deposits and withdrawals.
These measures mean that Reserve Bank Governor Gideon Gono is the only one who can approve accommodation for any bank.
The high policy rates have created a situation whereby banks are now vulnerable to the continued existence of high expenditures by the government and the Reserve Bank because any slow down in their fiscal and quasi-fiscal activities might â€œshakeâ€ banks and their clients.
The Reserve Bank said all motivations for accommodation must be accompanied by comprehensive applications written by the bankâ€™s chief executive officers fully explaining the origins and justifications for the shortfall, supported by documentary evidence.
Banks are also facing declining deposits, with some banks being accused of using depositors money to buy foreign currency on the parallel market or investing on the stock market.
As of October 31, about 18,62% of depositorsâ€™ funds held by commercial banks was said to be locked up in shares and other non-core investments.
The countryâ€™s five merchant banks had a total 30,17% of depositorsâ€™ funds locked in shares.
The four building societies have poured 16,85% of depositorsâ€™ funds into shares and other investments.
Banks economists described the Reserve Bank accommodation interest rates as â€œout of synchâ€ with inflationary trends. Inflation is said to be above the official 231 million percent.
â€œThe rates are too ghastly to contemplate if one takes into account their effect on bank survival in the event of a money market liquidity crunch which will force banks to go to the central bank for accommodation,â€ a bank economist said.
What initially started as a cash crisis feeding off an unprepared monetary authority in rapidly absorbing inflationary pressures through the introduction of higher denominated bearer cheques or further slashing of zeros has taken an unexpected twist.
It appears to be the making of unethical banking practices within the financial services sector.
After mounting pressure from a restless banking public since the onset of the cash crisis late last year, the Reserve Bank is on record saying it had â€œlots of moneyâ€Â uncollected in their vaults because banking institutions did not have the security to access the money to meet their customer withdrawal requirements.
Most banks are accused of being â€˜guiltyâ€™ of violating provisions of the Banking Act by investing liquid depositor funds into relatively illiquid speculative investments that put them at risk in the event of a run on deposits facilitated by a massive increase in daily withdrawal limits for individual and corporate account holders.
Banks balance sheet show that they have been engaging in more lucrative non-core business activities to remain viable.
The manner in which most of these financial institutions structured their balance sheets now puts their very existence at risk because of the prohibitive interest payments that they will have to make to the Reserve Bank for accommodating them against a liquidity crunch.
The ordinary man on the street might be probably cursing banking institutions for engaging in illicit operations that have caused them so much discomfort as they cannot access their cash.
Cash shortages will persist as banks have little Treasury Bills (TB) that they can use as collateral when collecting money from the Reserve Bank.
Treasury Bills are issued at 340% against official inflation of 231 million percent will compromise their earnings and force them to scale down on the amounts they have been procuring in cash in relation to deposits.
While the Reserve Bank has kept the accommodation rates very high, depositors are languishing with interest rates below 250% per annum.
The Reserve Bank demands 45% of statutory reserves from banks and this according to officials has seen most financial institutions â€œhurriedlyâ€ offloading their securities portfolios to improve their liquidity positions.
By Paul Nyakazeya