The maintenance of a large portion of banks’ deposits in nostro accounts has been partly blamed for the liquidity problems the country is facing and the subsequent stifling of the productive sectors of the economy.
As a counter measure, Finance minister Tendai Biti and Reserve Bank governor Gideon Gono a fortnight ago directed that banks only be allowed to maintain 25% of their total deposits in the nostro accounts, while the balance 75% had to be held locally.
A nostro account is an account operated by a bank outside its borders for the purposes of making settlements for its clients abroad.
The directive on nostro accounts is among a raft of measures announced by Biti and Gono in a bid to improve liquidity and stability in the banking sector. Attempts to improve liquidity include restoration of the Reserve Bank of Zimbabwe’s lender of last resort function, which will see banks able to make overnight borrowings from the central bank in order to square their books.
The central bank has also introduced short to medium term paper in order to stimulate interbank trading. This allows banks that have excess cash to hold onto the paper, which bears interest, while their excess cash is availed to those in cash deficits.
The directive for banks to hold only 25% of their balances in offshore accounts took effect from yesterday.
Official sources in the financial sector revealed some institutions had not fully complied with the directive although they had made a commitment to repatriate about $200 million.
“There is a commitment to repatriate about US$200 million,” said an authoritative source in the banking sector. Banks with the bulk of deposits in nostro accounts include Standard Chartered, Stanbic, Barclays and FBC.
The sources also indicated that as at the beginning of this month, 22 of the country’s 25 financial institutions had now complied with the regulatory minimum capital requirements which stand at US$12,5 million for commercial banks and US$10 million for merchant banks and building societies.
These requirements, along with the directive that shareholders should be hands off in the day to day running of banks, are part of measures instituted by the Ministry of Finance and the Reserve Bank to stabilise the banking sector.
ZABG Bank, Royal Bank and Genesis Investment Bank are however still not compliant, ahead of the March 31 deadline. All the banks had however submitted their recapitalisation plans by February 14, in line with a directive given by Reserve Bank governor Gideon Gono when he gave his Monetary Policy Statement on January 31.
ZABG Bank, saddled with a negative capital of US$15,35 million, is finalising negotiations with three potential investors, Unicapital Finance of Mauritius, Swiss-based company AFG Global and a local company Trebo & Khays (Pvt) Ltd. The deal is expected to be concluded by the end of March.
Genesis Investment Bank (GIB) is undercapitalised, having only about US$3,2 million.
“The bank is negotiating with SwissCharge of Zambia and some local investors who could pour in US$20 million,” said the source.
Royal Bank has capital amounting to US$3,42 million. Royal is trying to merge with two local banks with a combined capital of US$34 million while also finalising an agreement with a local pension fund for equity participation of US$5 million. The deals are expected to be sealed by the end of the month.
Kingdom Bank and Renaissance Merchant Bank (RMB), which were undercapitalised, are now in compliance with the minimum capital requirements.
Kingdom has now fully complied after US$9,5 million was injected in mid last month by AfrAsia Holdings Ltd.
RMB has capital amounting to US$24 million after NSSA injected US$9,83 million. NSSA also converted its deposit of $8,5 million with RMB into equity, and assumed a debt of US$5,7 million owed to Econet Wireless (Pvt) Ltd and Renaissance Financial Holdings Ltd by RMB.