Zim banks to get reprieve
RBZ wants commercial banks to have a minimum $1 trillion or US$10 million in capital reserves by September 30. After that date, the new capital requirements would be pegged to movements in the exchange rate. For example, if the local unit fell to around $200 000 against the US$, banks would be required to beef up their reserves to a whopping $2 trillion. In July last year, when the new laws were announced the US$10 million equalled Z$100 billion, which most banks have managed to meet. But the continued depreciation of the dollar to $99 200 (versus the greenback) has put more pressure on banks, and the post-September requirements could leave industry weaklings in limbo. Analysts and bankers feel the RBZ exchange rate capitalisation requirements could cause panic in the sector and are not ruling out the possibility of another banking sector crisis reminiscent of the 2004 era. Southern Times gathered this week that the central bank was planning to rescind its earlier proposals by using the December 2005 exchange rate as a benchmark. Industry sources said the move to be taken by the central bank was aimed at averting another financial crisis as many banking institutions might find it hard to meet the new requirements. “This matter is being seriously considered,” said one source whose name cannot be published, “but obviously, the RBZ will revert to the December rate.” Financial analysts say whatever the decision taken by the RBZ should ensure no banking crisis would reoccur. “We are likely to see more banks failing to comply with the new capital requirements,” said Blessing Sakupwanya, a financial analyst with CFX FS. “In that respect, if the central bank plans to change the capital requirements structure that would be a welcome move as long as the conditions are conducive to maintaining stability in the banking sector.” Analysts say capital requirements should be effected in such a way that normalcy prevails in the sector coupled with a productivity thrust to sustain and strengthen the ongoing economic turnaround programme. However, other analysts feel the RBZ has to re-orient its position putting into perspective inflation expectations, and what the banks’ capital adequacy ratios would mean to the industry in such an establishment. Tetrad Securities analyst Hillary Mpariwa remarked: “The Reserve Bank and the banking fraternity should agree on the way forward. “A common decision which balances viability and the capacity of banks to facilitate socio-economic development and safeguard the depositors’ investments should be struck. That is the triangular relationship that should be in existence.” The post-September capital demands could cast a cloud on the industry, particularly for the smaller players who are struggling to expand their market share let alone profits. Traditional big banks, notably CBZ, Barclays, Standard Chartered, and Stanbic, may be sitting on huge cash resources given their strong balance sheets but it is certainly a different story for the small fish, such as Metropolitan Bank. As a result, financial institutions could be forced into merging (as been the case already with other firms), consolidation and or acquisitions, transactions largely expected to take centre stage in the industry this year.