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Presenting the mid-term monetary policy review statement on Tuesday, Reserve Bank of Zimbabwe Governor Dr Gideon Gono announced that commercial and merchant banks would be required to have minimum capital of $100 million from $12,5 million and $10 million respectively.
The minimum capital threshold for building societies was increased from $10 million to $80 million, finance and discount houses from $7,5 million to $60 million and from $1 million to $5 million for microfinance institutions.
Dr Gono said the institutions should be fully compliant by June 2014, but should meet 25 percent of the new equity capital levels by the end of the year.
Commercial banks will have to raise their minimum capital requirements by $12,5 million by the end of the year. The financial institutions are expected to be 75 percent and 100 percent compliant by 31 December 2013 and 30 June 2014 respectively.
“The new capital thresholds will result in a lunar banking sector, which will be stronger because $100 million is large capital. The new minimum capital requirements for financial institutions will result in few banks operating but with a robust financial base,” said an economic commentator, Mr Trust Chikohora, adding that the development was tantamount to reducing bank failure in the economy.
He said as a result of increased minimum thresholds, banking services would improve, creating a situation where depositors would be charged less interest rates on loans as well as bank charges because the institutions would have more capital volumes.
Mr Chikohora said at the moment the country was overbanked.
“Certainly, for now the country is overbanked; the number was just too much. The size of the economy is not in sync with the number of banks. And by increasing the minimum threshold, it means some of the institutions will be trimmed down. However, the only down side that is likely to be experienced going forward is that we may have too few but very powerful institutions that may fail to service the lower end of the market especially on loans,” he said.
“A stronger financial services sector is an important ingredient of economic performance.”
In his presentation, Dr Gono said all institutions whose minimum paid-up capital does not comply with the respective prescribed levels would be required to submit a detailed recapitalisation plan by next month.
“The increase in minimum capital levels for banking institutions has been necessitated by the dynamic nature of the financial landscape, regulatory requirements, increase in competition and economic uncertainties, which has placed unprecedented pressure on banks to be adequately capitalised,” said Dr Gono.
Another economic analyst, Ms Chipo Warikandwa, said banks that would remain operational under new capital thresholds will have more deposits to loan out to the public and industries.
“We are hopeful that the liquidity challenges experienced in the economy so far will improve progressively. We would look forward to seeing banks availing significant funding to stimulate economic growth,” she said.
The liquidity crunch is one of the impediments resulting in economic stagnation because the productive sectors are grappling to secure credit lines to stimulate productivity.
About $2 billion is needed to resuscitate productivity to competitive levels.
Mr Peter Mhaka, another economic commentator, said: “Banking confidence is expected to improve as a result of increased minimum equity levels. Confidence in financial services will improve in a well capitalised banking sector as people will start getting interest from deposits.”
The Bankers Association of Zimbabwe president Mr George Guvamatanga could not be reached for comment.
Challenges around securing funding to meet current regulatory capital thresholds have resulted in Genesis and Royal banks surrendering their licences, while Interfin was placed under curatorship.
The monetary authorities have said bigger economies such as South Africa and Nigeria were supported by fewer banks compared to the situation in Zimbabwe.
South Africa, with a Gross Domestic Product (GDP) of $400 billion last year, was anchored by 32 banks, while Zimbabwe, with a GDP of only $10 billion, has 26 institutions.
Online Reporter