Banks demand safety net

John Mushayavanhu was not prepared to discuss the issue, The Herald Business has it on good authority that foreign banks were not prepared to channel the funds to the central bank for purposes of improving liquidity.
This comes as it emerged that most foreign banks were selectively lending the repatriated funds to blue-chip counters as they are traditionally risk averse and only lend to clients they are sure will not default.
BAZ made the proposal to issue NCDs against the repatriated funds amid concerns that the funds were not finding their way into a Real Time Gross Settlement account at the RBZ to improve liquidity in the banking sector.
While banks are obligated, in terms of Exchange Control Directive RN32, to repatriate 75 percent of balances in their offshore Nostro accounts, there is no statutory provision compelling them to channel them to the central bank.  The repatriated funds were aimed at alleviating liquidity constraints in the banking sector and the economy in general. If the funds were finding their way into the banking system financial institutions facing shortages would also benefit, but as things stand only a few blue-chip firms were benefiting.
Banks were directed to maintain 25 percent of their Nostro account balances as part of Government’s efforts to ease liquidity constraints, which worsened at the end of last year.
A Nostro account is a foreign currency bank account held by one bank in different financial institutions in another country, usually in the currency of that country.
But some of the banks, especially foreign-owned ones, have been reluctant to direct the funds to the central bank’s account amid startling revelations they have been lending to mostly blue-chip companies at grossly discounted interest rates.
“Most of the repatriated funds have not been channelled to the RTGS account. Most of the big foreign banks are targeting blue chip firms and giving them the money at (interest) rates as low as 5 percent,” said a source.
“They are avoiding the RBZ account because they are not obligated to do that (as with exchange control directives). The proposal (to channel the funds to the RBZ) is based on moral suasion; it is not a monetary policy (directive). We have since proposed issuance of NCDs.”
NCDs would ensure that the central bank has control over the distribution of repatriated funds as part of overall efforts to improve liquidity in the economy.
The proposed NCD initiative comes amid general reluctance by mostly foreign-owned banks to repatriate the millions of dollars held in their offshore accounts. Statistics from the Reserve Bank show that overall Nostro account balances stood at US$312 million last Thursday instead of US$230 million as required by the central bank.
Reserve Bank Governor Dr Gideon Gono has threatened unspecified action against truant banks to ensure full compliance.
The central bank has so far turned down applications by Standard Chartered Bank and Barclays Bank to maintain 25 percent of their Nostro account balances.