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of 14 000 points.
This was in sync with Zimbabwe Stock Exchange’s 14-day winning streak, which posted slightly above 21 percent.
The London interbank rate (Libor) is still not preferable as a benchmark measure of interest rate setting and the absence of a free risk paper equally compound the already lost leverage by Zimbabwe’s central bank on determining monetary conditions within the economy.
Could there be a dollar link for the two exchanges through their common unit of currency?
The volatility of the South African rand, downgrading of the very same economy mainly due to the ongoing labour unrest, China’s economic slowdown and a stubborn current account deficit gaining momentum in Zimbabwe duly pose a debilitating effect on the effectiveness of this first half monetary policy in the country.
With an almost absent monetary base, credit creation by banks existing in a multi-currency environment without the lender of last resort is next to a substantive impossibility.
It is against this background that Reserve Bank of Zimbabwe Governor Dr Gideon Gono walked into the RBZ auditorium clad in a red tie and a beige suit almost 35 minutes after the scheduled timeline for the monetary policy announcement.
Understandably, he was meeting the top bankers in the land ratifying the Memorandum of Understanding draft which would act as a morality social contract on how to handle the fiery matter of bank charges and other banking threats.
The banking executives looked sober and stable throughout the presentation, which to me implied that there was a hint on what could be in the pot.
The raft of measures that were announced included the need for a micro-finance Bill, finalisation of the corporate governance code, adherence to indigenisation and empowerment policy and interest rate charges justification reports by micro-finance institution.
Whether this is a sign of good times to come considering such policy pronouncements are precipitating to Basel II Accord, will be clearer in due course.
The absence of market discipline and a compromised supervisory review process due to an undercapitalised central bank had made complying with the Basel II tenets a mirage.
The fact that the Dr Gono took a softer approach in handling the banking sector is commendable knowing very well that the dominant hot money within the market could not withstand a contractionary monetary policy.
There is certainly nothing peculiar about a directive to allocate loans to a preferred sector, the RBZ in its monetary policy is compelling SMEs to receive at least 30 percent of the total loan book.
This is not expected to make a significant shift in the economic structure, as banks’ allocation to individuals is already higher and disproportional compared to the corporate sector.
However, the downside risk is when the average performance and management style of such SMEs is unimpressive, then banks are certainly compelled to exercise discretion on loans disbursements.
One of the common features of domestic SMEs is their specialisation in finished merchandised products which a low employment per unit nature.
It is the banking sector in Zimbabwe, which needs a kicking economy unlike the common belief sprouting in every debate to do with Zimbabwean economy.
With an all time high sovereign risk induced by a US$10,7 billion external debt, political uncertainty, and a struggling manufacturing sector, it is misleading to expect a banking sector with a robust balance sheet and appetite to lend out.
It is the economy not the banking sector, stupid.
Of the 22 banking institutions which had complied with the set minimum capital requirements, more than 60 percent of them could not register more than US$5 million variance with the set requirement for the first quarter.
Of the top five significantly capitalised banking institutions, only CBZ – an indigenous bank – with the rest primarily registered outside Harare.
Only God knows where the big, local bank would be perched if it did not have substantive Government funds in its vaults.
In simpler terms, there is a strong and positive correlation between meeting the domestic capital requirements and having a strong foreign shareholding component. The secret is a high level of liquidity risk in Zimbabwe desperately calls for significant foreign direct investment.
The architectural positioning of foreign banks in Zimbabwe is synonymous to South African banks’ relation to the entire continent, in the last banking survey in Africa.
South Africa is home to the four biggest banks in Africa by balance sheet size out of 200 banks that were surveyed.
Without South African banks on the map, Africa’s financial service sector will be the downtown financial district of world markets.
In Zimbabwe it is significant to moot an indigenisation model within banking which will not leave our sector weaker than ever before.
The governor went on to call for the accreditation of a credit reference bureau and the intention to introduce credit rating system.
The level of information asymmetry coupled with corporate governance deficiency in the domestic banking sector remains a threat to its growth potential.
A high ratio of non-performing loans averaging around 13 percent with chronic insider trading has been part of products of an opaque banking system.
However, given the general culture in the market it remains a wonder on who will be entrusted with rating when external auditors have set a precedent before of failing to bite the hand that feeds them.
A credit reference bureau is more effective in a climate of utmost good faith, where the interbank market is more vibrant and deeply interconnected.
In Zimbabwe, one of the major reasons why mergers had not been experienced save for the CFX, Century Bank deal back in 2004, is mainly to do with unhealthy transactions propagated by the “big brother” attitude in boardrooms.
Today you merge with a wrong partner, tomorrow a significant portion of balance sheet assets will be impaired.
This leaves a question of what comes first Basel II implementation or the embracing of 2013 monetary policy requirements of a credit reference bureau, micro-finance Bill and the credit rating system.
The just announced monetary policy is quite commendable as it is giving non-compliant banks room to adjust without shaking market confidence.
With foreign investor appetite for Zimbabwean economy at the ebb, the economic cycle seemingly having reached a ceiling and the trade balance skewed to consumer goods with very limited gross fixed capital formation, Zimbabwe’s banking sector is still fragile.
Christopher Takunda Mugaga is the head of research at Econometer Global Capital, a regional finance and economics research firm. He can be contacted on: [email protected] or +263 772 340 353 or +263 776 266 062.
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