THE Reserve Bank of Zimbabwe is raising capital requirements for banks tenfold in a bid to protect depositors’ funds, Governor Gideon Gono said on Tuesday.
Unveiling his mid-term monetary policy statement, Gono encouraged the country’s financial institutions with “unrealistic chances of meeting the capital requirements” to consider mergers.
“A fragmented banking system characterised by numerous weak and undercapitalised banks will not only increase the vulnerability of the financial system but also of the economy as a whole,” Gono said.
“The new capital requirements will strengthen both local and international banks so that they play a meaningful role in the development of the economy.”
Under the new regime to be introduced gradually between this year and 2014, commercial banks will be required to raise their minimum capital from the current US$12,5 million to US$100 million.
Merchant banks must raise their capital from the current US$10 million to US$100 million; building societies from US$10 million to US$80 million; finance houses from US$7,5 million to US$60 million and microfinance banks from US$1 million to US$5 million.
Gono said due to capital inadequacies, “small institutions are using depositors’ funds to finance branch expansions and meet operating costs”.
“Mergers and acquisitions have become a major strategic option for banking, aimed at entrenching a strong, efficient and diversified financial sector that ensures the safety of depositors’ funds, plays an active developmental role in the economy, and competes effectively in the global financial system,” the RBZ chief added.
Gono outlined a phased plan for the banks to meet the new requirements.
The financial institutions must comply with 25% of the prescribed minimum equity capital for their class of banking business by December 31, rising to 50 percent by June 30, 2013, and 75 percent by December 31, 2013. The banks must be in full compliance by June 31, 2014.
Zimbabwe currently has 26 banks, 16 asset management companies and 172 microfinance institutions under the supervision of the Reserve Bank.
This year has already seen the closure of two banks – Interfin Banking Corporation and Genesis Investment Bank due to what the Reserve Bank says was “poor corporate governance and risk management systems, high levels of insider trading as evidenced by indecent loans to related parties, coupled with over indulgence in speculative non-core banking activities and inadequate capitalisation”.