adminPresenting the 2012 national budget last week, Finance Minister Tendai Biti said in addition to the $7 million advanced to the central bank in 2010 for the lender of last resort function, a $100 million fund jointly funded by some international financial institutions and a regional financier was being introduced.
Minister Biti, however, said the interbank market trading remained largely inactive due to inadequacy of financial resources required to sustain efficient operation of the function.
“The $100 million fund is being introduced as an attempt to beef up the $7 million advanced to RBZ by Government so that the central bank can perform its lender of last resort function.
“The fund will thus go some way in reducing liquidity risk in the banking sector,” said BancABC group economist, Mr James Wadi.
He said the banking sector expected to see the fund growing bigger and bigger so that banks whenever they fall short of resources could turn to the central bank for bridging finance.
Mr Wadi said it was imperative for the authorities to come up with modalities through which banks would access the funds.
Another economic commentator Mr Peter Mhaka said the introduction of the $100 million fund was a step in the right direction with regards to attempts aimed at restoring the RBZ’s lender of last resort function.
He, however, said although efforts were being made to capacitate the central bank by injecting financial resources, financial institutions were facing difficulties to access the funds.
“For example, the $7 million that was advanced to the central bank in 2010 is yet to be accessed by banks because the institutions are required to provide collateral in the form of treasury bills, which at the moment are not available,” he said.
Mr Mhaka said the forthcoming monetary policy statement is expected to reflect the best way to take in the absence of treasury bills so that financial institutions were able to access bridging finance.
In a commentary, Kingdom Financial Holdings Limited (KFHL) also said the lender of last resort facility would lower liquidity risk in the banking sector due to an improvement in confidence by the banking public and the resultant increase in long-term deposits should see banks being able to offer long-term loans at reduced rates.
The financial institution said individual and company incomes that were still low are expected to continue on a slow but sure upward trend, a development that should improve bank deposits and financial intermediation.
“In 2012, we expect deposits penetration which stood at around 34 percent at the end of 2010, to rise further to at least 40 percent due to an improvement in confidence, more use of mobile banking and plastic money,” said KFHL.
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