admindirect investment.
Economic observer and Comesa Business Council secretary-general Mr Trust Chikohora said the IMF team should take cognisance of the fact that the recent bank failures are in part due to the broader economic malfunctions.
“The need for more external lines of credit and foreign direct investment for Zimbabwe should even be more self- evident for the IMF team,” he said.
The IMF team is currently in the country for the routine Article IV consultations that deal with economic developments and policies of member countries. The team visits
Zimbabwe each year in June to compile a report in collaboration with the Government and other stakeholders.
Mr Chikohora added that there was nothing wrong with the way RBZ handled the Interfin and Genesis issue.
“The economy is still plagued by a liquidity crunch with inadequate cash flow in the market, financing is still very limited and primarily short-term in nature with high interest rates and we have a lot of banks competing for limited short-term or transitory deposits.
“The collapse of Genesis Bank and the placing under curatorship of Interfin Bank, although it may also be due to other factors, is a manifestation of this environment.
“However, the process leading up to the current position of these banks seems to have been properly handled by the authorities and was indicative of a prudently managed financial system, under the circumstances.
“That aspect should be viewed positively by the IMF notwithstanding the current state of the economy,” he said.
There had been concerns that the problems at Interfin Bank and Genesis Bank have come at a most inappropriate time as the IMF team is currently in the country for its Article IV consultations with economic authorities.
During last year’s visit, the IMF team expressed concern about growing vulnerabilities in the local financial services sector.
Incidentally, the 2011 IMF visit coincided with a full-blown Rennaissance Merchant Bank crisis. In its report at the time, the IMF warned local monetary authorities that the Zimbabwean economy could not afford a banking crisis.
“The banking system remains highly vulnerable with weakening capitalisation, rising non-performing loans, and a tightening liquidity situation . . .
“Rising vulnerabilities in the banking system need to be addressed by stepping up supervisory efforts and better enforcing compliance with prudential requirements,” said the IMF.
The IMF team may, however, be unlikely to be sympathetic to the country after expressing misgivings about the Reserve Bank of Zimbabwe’s apparent indifference to its advice. The IMF said the RBZ was somewhat reluctant to take a more cautious approach to negate the sector’s vulnerabilities.
“RBZ officials expressed reluctance to implement staff advice and stressed the importance of striking the appropriate balance between financial stability considerations and the need to support credit growth and provide banking services to under financed groups.
“In this regard, the RBZ saw an urgent need for a sufficiently large lender-of-last resort facility rather than prudential measures. However, there is broad consensus among policymakers that there is no fiscal space for such a facility,” said the IMF team last year.
Some of the key prudential measures suggested by the IMF team at the time included the need for the RBZ to require that risky banks hold additional liquidity buffers, improve its stress testing of banks and to ensure sound loan underwriting standards and practices.
The central bank did not warm up to the idea of tightening prudential requirements since their tighter enforcement would result in a reduction in credit growth, a development local authorities said would stifle economic growth.
Online Reporter