THE Reserve Bank of Zimbabwe (RBZ) governor Gideon Gono recently presented his mid-term monetary policy review meant to complement the mid-term fiscal review that was earlier presented by Finance minister Tendai Biti.
Report by Peter Gambara
Gono is in his last term as governor and during his presentation made reference to this point several times, threatening non-compliant banks and financial institutions that he would go out with them if they failed to comply. He also made a number of important decisions and it can be argued he is trying to make amends before leaving office.
It is not a secret that during the hyperinflation era, Gono was like a demigod. Today, he is a pale shadow of the man he was then and he has made a couple of enemies in the process, including pensioners, whose savings were wiped out by his continued devaluation of the now defunct Zimbabwe dollar. His former advisor Munyaradzi Kereke has not helped the situation either with his utterances.
The biggest decision announced by Gono recently was the review upwards of the minimum capital requirements for banks to US$100 million. He also raised the requirements of other financial institutions. That seemed to have caught the bankers off-guard, judging by their reaction.
Gono had previously promised to just double the minimum capital requirements and the 700% increase surprised many inside and outside the banking sector. This came hard on the heels of some banks having struggled to meet the prior US$12,5 million minimum capital requirement just before the window closed.
The motive behind increasing the minimum capital requirement by 700% has caused a lot of debate, although the issue is now somewhat settled. The governor has argued this will bring stability to the sector, bearing in mind how banks have collapsed in the United States and Europe. He also cited “economic uncertainties” as one reason to do so. One wonders whether these “uncertainties” include indigenisation.
Gono had previously been involved in a tug of war with Indigenisation minister Saviour Kasukuwere over the latter’s attempt to take over banks. While Kasukuwere insists banks cannot be spared in the indigenisation drive, Gono argues doing so will simply erode people’s confidence in the banks, triggering collapses and economic destabilisation. The recent collapse of a few indigenous banks lent weight to Gono’s argument.
In order to “win” the war, it is possible the governor simply increased the minimum capital requirements to levels that would make it almost impossible for the greedy local sharks who wanted to make moves towards the foreign-owned banks. It simply becomes unattractive to do so. While the foreign-owned banks might feel “protected” by Gono’s manouevres, local banks think the increase was just too steep.
The RBZ governor tells us bankers had actually proposed an even higher level of minimum capital requirements during the recent bankers’ indaba and that he eventually revised it downwards; so why are the same bankers crying foul now?
Another important recent announcement is that the RBZ would introduce a lender-of-last-resort (LOLR) Fund of US$150 million, with the central bank itself contributing US$30 million and the balance of US$120 million being provided by the private sector. The issue of LOLR has been outstanding for quite some time, with banks mourning that its absence is constraining them in terms of offering long-term finance to the productive sector.
This is against a backdrop of banks receiving short-term deposits from the public. Biti has previously pledged US$100 million towards this cause, so let us hope this time around the money will be found.
Gono also announced government would soon issue 90-day and 365-day Treasury bills to promote short-term collateralised lending. This should promote interbank trading that was previously minimal. It is hoped though the introduction of these Treasury bills will result in more reasonable interest rates being charged by the banks. Some of the interest rates, charges, fees and commissions being charged by some banks are just ridiculous and utter madness.
The monetary policy statement came as one more bank, Royal, surrendered its banking licence in the same manner as Genesis Investment Bank had done at the time when Inferfin Bank was placed under curatorship for gross irregularities.
It is, however, puzzling why the RBZ always seems to discover anomalies in banks only just before they collapse. This brings into question whether RBZ is doing a good job of supervising these banks. Why does it take a bank to collapse before RBZ tells the nation there were insider dealings, with the directors giving themselves huge unsecured loans and involved in other corruption?
RBZ should constantly be monitoring these banks. Why then does the central bank seem unaware of problems at banks until the last minute? Gono and his staff must tighten bank supervision before he leaves at the end of his second term if he wants to ensure a good legacy.
The fact that it is only indigenous banks that failed in 2003/4 and this time seems to give the impression local bankers cannot be trusted with people’s monies. This trend tends to make depositors move their monies to foreign-owned banks which they consider to be safer. That is a backward step as far as our attempts to indigenise the banking sector is concerned. Maybe with adequate supervision, local banks would run better and not continue collapsing.
Both Biti and Gono have previously promised to do something about the prevailing high interest rates on bank loans against low interest rates on deposits; but both the fiscal and monetary policies seem to have glossed over the issue once again.
Since the banks are acknowledging that some of them are profiteering from loan interest rates, why don’t we just say the difference between what a bank charges as interest on a loan and what it pays on deposits should not exceed, say, 10 percentage points as an example?
That should also make banks think twice before overcharging on loans. One aspect that seems not to have been tackled has to do with the Deposit Protection Fund. Depositors whose monies were locked up in Genesis were recently told that they would be paid a paltry US$150 as that was the maximum amount insured under the fund. Surely, those affected would not want to keep their monies in the bank again and would rather just keep their savings under the pillow?
Banks have always struggled to attract deposits from those who prefer to keep their monies at home, but with such levels of pay-outs in the event of a bank failure, it is hardly attractive to take your money to the bank.
It is to the benefit of government and the bankers to come up with a more acceptable Deposit Protection Fund that will make it attractive for people to take their money to the banks. Insurance companies are willing to work out a more acceptable arrangement and banks should pay for this from their astronomical profits as shown in the latest results of the financial period ending June 30 2012.
- Gambara is an agricultural economist and consultant with AgriExpert, a consultancy firm. He writes in his personal capacity. His e-mail address is email@example.com