ACTING Reserve Bank of Zimbabwe (RBZ) governor Charity Dhliwayo on Wednesday extended the deadline for bank’s minimum capital requirement of US$100 million to 2020 from June 2014 in a move seen as giving financial institutions time to put their houses in order.
Presenting her monetary policy statement (read statement in full here), Dhliwayo said capital requirements would remain at the December 2012 levels of US$25 million.
“As such we urge banking institutions to continue their efforts to strengthen their capital positions in order to maintain relevance in the economy,” she said.
Dhliwayo said total banking assets as at December 31 were at US$6,7 billion with commercial banks accounting for 82,69 percent, Building Societies at 13,65 percent, Merchant Banks at 2,31 percent and Savings Bank at 1.35%.
As at December 31, 2013 total banking sector deposits amounted to US$4,73 billion while loans & advances were US$3,70 billion. Notwithstanding the deceleration in deposit growth, the loans to deposit ratio increased from 37,33 percent in June 2009 to 78,29 percent.
Dhliwayo noted that under-capitalised banks are saddled with high levels of non-performing loans. In addition, banks were also under-declaring of the level of provisions for bad and doubtful debts, thereby overstating their earnings and capital positions.
“Within this context, the banking sector’s average non-performing loans to total loans ratio (NPLs/TLs ratio) stood at 15,92 percent as at 31 December 2013,” she said.
“Notably, as at 31 December, 2013, the level of total insider loans in the banking system was US$175.3 million (including Interfin). Of these insider loans US$117,4 million (66,97 percent) was non-performing. The growth in non-performing loans within insider loans is a worrisome development.”
The restoration of the Lender of Last Resort (LOLR) facility implies that an overnight accommodation rate will be announced by 31 March, 2014 and becomes applicable for the facility. The overnight accommodation rate will be the anchor interest rate that will act as a benchmark for market rates.
The central bank also called for the creation of a secondary mortgage market, which will be for the sale of securities collateralized by income streams from mortgage loans.Advertisement
Dhliwayo noted that the banking sector was generally stable in spite of the various underlying macro-economic challenges and institution specific weaknesses.
The few troubled banking institutions are of low systematic importance as they accounted for less than 10 percent of the banking sector’s total assets, total deposits and total loans as at December 31 2013.
However, the predominance of short-term deposits has constrained the banking sector’s potential to provide effective financial intermediation to productive sectors of the economy.
Again, the tenor of lending has remained confined to the short-term at a time when the productive sectors require long-term funding for re-tooling.
Individuals continued to dominate at 23,8 percent in terms of credit. Services were at 18,42 percent, agriculture 15,12 percent, Manufacturing at 15,03 percent and construction at 3,69 percent.
“The scenario where lending to individuals constitutes the highest proportion of total lending reflects attendant macroeconomic challenges currently experienced. In addition, this development exposes the structural fragilities in the sector, particularly in view of the consumptive nature of the lending and widespread de-industrialisation in the economy,” she said.
Monetary Policy Statement major highlights
• Banks’ $100 million capitalization deadline moved from 2014 to 2020.
• The country will continue with the use of multiple currencies.
• Chinese Yuan, Japanese Yen, Indian Rupees and Australian Dollars now accepted and used in Zimbabwe.
• The Reserve Bank will resume its traditional function as the banker to Government with effect from 31 March, 2014.
• As at 31 December 2013, total banking sector deposits amounted to $4.73 billion while loans & advances were $3.70 billion.
• Total banking sector assets as at 31 December 2013, were $6.7 billion.
• The loans to deposit ratio was 78.29 percent as at 31 December 2013.
• Capital levels will remain as per the thresholds obtaining in December 2012 ($25 million for commercial banks).
• Individuals constitutes the highest proportion of total lending at 23.80 percent
• The banking sector’s average non-performing loans to total loans ratio (NPLs/TLs ratio) stood at 15.92 percent as at 31 December 2013.
• Provision to criminalise bankers for negligence and fraudulent activities.
• Prohibits loans to insiders and related parties.
• Existing insider loans should not be renewed or rolled over.
• The level of total insider loans in the banking system was $175.3 million. Of these insider loans 66.97 percent was non-performing.
• The Reserve Bank will closely monitor compliance with the required maximum fixed asset ratio of 25 percent.