KINGDOM Financial Holdings (KFHL) has warned that the country’s financial services sector remains at risk unless the government moves to recapitalise the central bank and help restore its lender of last resort capacity.
KFHL’s warning comes after the Reserve Bank of Zimbabwe (RBZ) recently moved to close Genesis Bank and placed Interfin Bank under curatorship in a bid to prevent problems at the two institutions affecting the whole sector.
“The central bank has largely remained undercapitalised since the advent of the multiple currency system in 2009 and attendant constraints have weakened its position to intervene and effectively regulate the financial sector,” said KFHL.
KFHL the central bank’s capital problems significantly increased the level of systemic risk in the local financial sector as institutions facing temporary liquidity stress cannot turn to the RBZ for help.
“Whilst the interbank lending market remained dysfunctional, banks remained exposed to settlement risks. This also explains the reason for the demise of Genesis and a possible similar fate for Interfin Bank Limited,” said KFHL.
KFHL said most banks have opted to stay clear of the interbank lending market because of the central bank’s inability to contain potential systematic risks that could arise when one or more institutions default.
“Restoring the apex bank’s ability to bail out banks during times of liquidity crisis will instill confidence among banks and the banking public and developments at Interfin Bank Limited and Genesis do not instill public confidence in the banking sector at all,” said KFHL.
The Reserve Bank placed Interfin under curatorship citing inadequate capitalisation, concentrated shareholding, abuse of corporate structures, high levels of non-performing insider and related party exposures as well as chronic liquidity and income generation challenges.
The RBZ also closed Genesis Investment Bank after the institution failed to raise the requisite minimum capital from over twenty different potential investors whom the bank tried to engage since 2009.