Editorial Comment: Moves to double banks’ capital requirements spot on

on the respective economies, thus emphasising the need for a solid banking sector for any economy to survive.
For Zimbabwe, a crisis of that magnitude is far-fetched given efforts implemented over the past decade to safeguard the sector but more robust measures should be put in place to plug any loopholes or pockets of potential weakness.
Reports last week of structural weaknesses and deficiencies in some banks need to be addressed urgently.
We thus commend the central bank for its plans to double the minimum capital requirements for banks as announced by Governor Dr Gideon Gono at the weekend.
This move may not sound logical to the lay person given challenges faced by some banks to raise their capital to current levels but we find it quite prudent in as far as it will ensure a stronger, more stable and adequately capitalised banking sector.
The intimation that the minimum capital thresholds may double should not send jitters in the market but they are a welcome development given the intermediary role that the banking sector plays in the economy.
Already tremours have been felt, emanating from the curatorship of Renaissance Merchant Bank and Interfin over the past year and the closure of Genesis Investment Bank.
We were also alerted last week by the registrar of banks that some institutions have resorted to using depositors’ funds to pay salaries and other expenses, a situation that is untenable.
President Mugabe aptly summed it up when he said some banks were gambling with depositors’ funds.
Onsite examinations of banks have revealed many irregularities.
Therefore, we implore the central bank to be strict with those banks that fail to increase their capital thresholds.
Finance Minister Tendai Biti and Dr Gono himself have previously encouraged smaller banks to merge and form formidable institutions in cases where chances of raising the required capital are slim.
This is something most bank founders are not comfortable with but at the end of the day, if their institutions do not have the wherewithal to raise more capital, they are left with no choice but to combine forces with others.
Of course, there are those big banks which will not struggle at all to double their capital levels because they are already in that position or can easily summon more capital, but those that have previously struggled or are already showing signs of weakness should be watched closely.
Depositors would want their hard-earned funds adequately accounted for and safeguarded well. Banks have been on a drive to lure deposits after confidence in the sector was battered by the 2004 banking crisis.
The confidence has slowly been creeping back as depositors realise that their funds are safe. However, they still need reassurance though that those that they entrust with their money are in a position to give it back on demand.
Many depositors have had to rely on the Deposit Protection Corporation to give them a fraction of the funds when banks fold, a trend that has remained worrisome.
Higher capital thresholds will not only boost depositor confidence but will also attract more funds though lines of credit and other facilities through which amounts secured are determined by a bank’s balance sheet.
Zimbabwean banks will also become more competitive in the region and internationally as they source for business and finance facilities.
We, therefore, anticipate maximum co-operation from banks once the deadline for the new thresholds is set.
This time the central bank should lose patience with those banks that will continue to appeal for more time to raise funds.
The current liquidity crunch in the economy has had a telling effect on banks, worsened by an undercapitalised lender of last resort. This has compromised banks’ profitability and their ability to rejuvenate the economy.
But we hope that most banks will survive this patch and help mend the economy.
We anticipate that the impending Monetary Policy Statement will address challenges in the banking sector while introducing more measures to consolidate the sector.
Zimbabwe has a very low savings ratio given limited disposable incomes and the side effects of the multiple currency trading system but these challenges can be staved off through a cocktail of strategies that banks will have to adhere to.
The high lending rates and low returns on deposits have not gone down well with depositors and we hope such issues will be addressed going forward.
This country’s banking sector remains one of the most competitive in the region hence a redress of existing challenges will leave the sector in better stead.