THE Reserve Bank of Zimbabwe is to increase the minimum capital requirements for foreign banks 20-fold to US$250 million while that of local banks is to be doubled from the current US$12,5 million to US$25 million, most likely by year-end, the central bank governor Gideon Gono has disclosed.
Gono said this while answering questions from members of the banking community at the recently-ended 43-rd winter school of the Institute of Bankers of Zimbabwe in Nyanga. The move is aimed at fostering the rapid consolidation of banking sector in the country.
“The dynamic nature of the financial landscape, regulatory requirements, increasing competition and economic uncertainties have placed unprecedented pressure on banks to be adequately capitalised at all times. Adequate capitalisation is now a source of competitive advantage,” said Gono who has long been making calls for local banks, especially the smaller banks, to either merge among themselves or integrate with larger banks.
Buttressing his argument, Gono said internationally, there was strong consensus among policy-makers on the need for higher minimum capital requirements for banks in order to foster a more stable financial system. According to Gono, the increased capital thresholds for banks would strengthen their resilience in the face of exogenous and endogenous shocks.
Gono’s comments come at a time when most local banks have just come out of a struggle to meet the current US$12,5 million minimum capital threshold for operating a commercial bank in Zimbabwe.
In the question-and-answer session he held with delegates to the IOBZ’s winter school, which covered several areas of the industry such as the stability and viability of banks, the restoration of a national currency and compensation of depositors in failed banks among other key issues, Gono highlighted that the higher thresholds were also in line with regional practice.
South Africa’s minimum capital requirements for commercial banks was US$39 million, Zambia had pegged its minimum capital adequacy for international banks at US$50 million, whilst Nigeria required international banks to fork out US$180 million. Smaller economies such as Rwanda and Ethiopia required banks to put up US$10 million.
However, Botswana, which was emerging as a financial centre in the region, had low minimum capital requirements of five million Botswana Pula (US$630 00) for both foreign and local banks. There is currently no majority-owned/indigenous local bank in Botswana and the space is dominated by international banks.
“I was telling the minister about my dream, last night where I saw myself telling local banks to love thy neighbour. I was also telling the minister about my dream to see the so-called foreign banks having a US$250 million capital requirement by December 2012,” Gono said.
In Zimbabwe, foreign-owned banks have also been facing a huge onslaught from Indigenisation and Economic Empowerment minister Saviour Kasukuwere, who recently gazetted a statutory instrument compelling them to localise 51% of their equity by June 2013.
Analysts say the effect of the increased capital threshold for the foreign banks will see these institutions being compelled to bring in more resources to substantiate their presence in the country.
At the same time, the differentiated levels of capitalisation between local and foreign banks will make it unattractive for locals who want shares in foreign banks, as the funds required for a 51% stake would be too high.
The analysts say it would be better for local banks to consolidate operations while some foreign banks may find the capital requirements too onerous and may opt out or “localise” in order to escape the higher capital requirements. Either way, analysts say, it is a smart move.
As at June 30, 2012, 23 out of 24 operating banking institutions were in compliance with the prescribed minimum capital requirements, whilst all 16 asset management companies were compliant with the US$500 000 minimum capital thresholds.