Government should not reintroduce the Zimbabwe dollar as this amounts to economic suicide, central bank boss John Mangudya warned.
In his maiden mid-term monetary policy statement presentation on Monday, Mangudya said government should demonetise the Zimbabwe dollar currency to restore confidence in the financial markets.
Mangudya said the multiple currency system adopted in 2009 would remain in force until such a time the country’s economy was stable enough to permit a rebirth of the local currency.
“Government’s consistent and official position is that the country is using the multiple currency system. This position has been well articulated by the Minister of Finance and Economic Development, Honourable Patrick Chinamasa, and is the bedrock under ZimAsset,” he said.
“The local currency would only be resuscitated when the country’s foreign exchange reserves and domestic production levels are significant enough to sustain its rebirth.”
But government is yet to heed such calls after the Bankers Association of Zimbabwe made similar recommendations some years back.
Although the banking sector is generally safe and sound, the general slowdown in the performance of the domestic economy continues to pose challenges to the banking sector, he said.
Mangudya said the banking sector remained generally profitable as at June 30 2014, with an aggregate net profit of US$13,84 million for the half year ended June 30 2014, up from US$4,90 million during the corresponding period in 2013.
“A total of 12 banks recorded profits for the period ended June 30 2014.
“The losses recorded by the few banking institutions are attributed to high levels of non-performing loans, lack of critical mass in terms of revenue to cover high operating expenses and deliberate strategy by some banks to clean up bad loan books through provisioning,” Mangudya said.
Total banking sector deposits increased by 4,86% from US$4,73 billion as at 31 December 2013 to US$4,96 billion as at June 30 2014, while loans and advances marginally increased from US$3,7 billion to US$3,81 billion, during the same period dominated by the industrial sector, household and transport.
The level of non-performing loans has risen to 18,5% as at June 30 2014 from 15,9% as at December 31 2013 due to challenging economic conditions and increasing cost of doing business that resulted in the debt repayment capacity of the borrowers remaining under stress.
The RBZ said credit risk remains a key component in the risk profile of the banking sector as the surge in delinquencies and loan losses has dampened banks’ risk appetite.
“Resultantly, banks have increasingly adopted a risk averse approach to lending,” Mangudya said.
A total of 14 out of 19 operating banking institutions, excluding POSB, were in compliance with the prescribed minimum capital requirements as at June 30 2014.
Mangudya said the efforts by banks to increase their capital positions have been constrained by a number of challenges including the macroeconomic environment and subdued foreign direct investment.
Mangudya said while only four banks — Metbank, Allied Bank, AfrAsia and Tetrad Investment Bank (Tetrad) — are hamstrung by liquidity and solvency challenges due to macro and institution specific factors, the banking sector remained safe.
The four banks command low market shares — 8,8% of total banking sector loans, 6,7% of deposits and 7,2% of assets as at June 30 2014 in a sector with 19 operating banks excluding state owned People’s Own Savings Bank (POSB).
“In this regard, shareholders and boards of the distressed banks have been directed to finalise implementation of their turn around plans, failure of which the Reserve Bank will be left with no option but to intervene and institute appropriate supervisory action in terms of the Banking Act,” Mangudya said in the statement, adding institutions should seriously consider consolidations or mergers and voluntary surrender of licences when deemed necessary.
“The Reserve Bank has been engaging these institutions to come up with credible plans to turnaround their waning financial condition.”
The central bank chief said although Metbank’s capital was compliant with the minimum capital threshold of US$25 million, the institution has been facing liquidity challenges.
He said Metbank has embarked on capital raising initiatives and other turnaround strategies to address its current challenges.
Mangudya said Tetrad has failed to meet some outstanding payments due to liquidity challenges. Tetrad has recently entered into a scheme of arrangement with its creditors to put a stay on litigations.
The scheme of arrangement is for three months up to 31 October 2014 and is envisaged to protect the institution’s assets for the benefit of all depositors and creditors.
“In an endeavour to address its solvency status, the bank is in discussion with a potential investor for the injection of capital. The scheme of arrangement is also expected to provide ample time for the potential investor to finalise the recapitalisation initiatives.”
Afrasia is also facing liquidity challenges and seeking liquidity support from the major shareholder and concomitantly pursuing a private placement transaction, whose successful consummation will bolster the bank’s capital level, the RBZ said.
“The Reserve Bank is satisfied with the current efforts by the major shareholder to strengthen the bank’s financial condition as evidenced by an injection of US$10 million which improved the bank’s capital to US$19,2 million as at 30 June 2014.”
Obert Mpofu’s Allied Bank faces both solvency and liquidity challenges and consequently has been failing to pay maturing obligations.
Mangudya said the Allied Bank board and senior management are working on various capital raising initiatives including engaging the major shareholder to raise funds to bolster the institution’s capital and liquidity position.