Banks get ultimatum

There were instances where founding shareholders were reluctant to offload significant portions of their equity to more liquid investors.
Kingdom Bank, initially on the list of undercapitalised banks, announced last week it had concluded an agreement with AfrAsia Bank for an injection of US$9,5 million to enable it to meet the required capital.

“All non-compliant institutions, including those previously issued with special dispensations for compliance with minimum capital requirements have up to February 14, 2012 to finalise their recapitalisation or consummate their mergers and acquisitions,” he said.
Renaissance Merchant Bank is still under curatorship as efforts to recapitalise the troubled bank continue.

Dr Gono said he had extended the curatorship period to March 3.
Barbican Bank’s licence expired on September 30 last year, but the bank has since appealed to the Ministry of Finance against the central bank’s intention to cancel its licence after failing to resume operations within the stipulated 12 months.

Commercial banks are compelled to have a minimum capital threshold of US$12,5 million while merchant banks should have US$10 million.

The central bank chief said the latest extension of the compliance deadline was the last and delinquent banks will not be allowed to operate by April 1.
He said he will engage, by no later than February 29, institutions that would have failed to identify credible partners and conclude recapitalisation transactions.
“The Reserve Bank will deal decisively with all non-compliant institutions in terms of the Troubled and Insolvent Bank Policy by no later than March 31, 2012.”

Dr Gono said as of December 31 2011, 20 out of 25 banks had met the central bank’s regulatory minimum capital requirements.
He said despite several extensions of recapitalisation deadlines, some banks failed to comply.
As such, the governor said there was no prudential basis for the continued existence of such entities.

“Accordingly, the undercapitalised institutions should do the honourable thing and voluntarily surrender their licences to the supervisory authorities, failing which they will be dealt with in line with the Reserve Bank’s Troubled and Insolvent Bank Resolution Policy.”
CBZ Bank is the country’s most capitalised bank at US$65,2 million, followed by Standard Chartered at US$53,2 million, Barclays US$33,3 million, BancABC US$32 million, Stanbic US$31,9 million and ZB Bank US$20,6 million.

Despite the failure by the three troubled banks to meet minimum capital requirements, Dr Gono said the banking sector remained safe and sound.
Financial institutions are required to have adequate regulatory minimum capital levels to ensure the safety of depositors’ funds in the event of a bank failing.
On the lending and investment rates quoted by banks, Dr Gono noted that they remained high because of persistent liquidity shortages, high credit demand, high associated risks, limited lines of credit and the absence of an active money market.

As at the end of October 2011, nominal lending rates quoted by banks ranged between 8 percent and 32 percent.
Dr Gono welcomed the Government’s intention to establish a Credit Reference Bureau to help the banking sector manage the growing credit risk by limiting borrower leverage.