Gono to present mid-term monetary review statement

In a commentary, Kingdom Financial Holdings Limited said the monetary policy statement comes against a background of noticeable structural weaknesses within the banking sector.

“Internal weaknesses have been sighted as the predominant reason behind structural faults within the banking sector which compelled the regulatory authorities to place some banks under judicial management.

“Mindful of the aforesaid, Dr Gideon Gono has warned banks to brace for an upward review of minimum capital thresholds when he presents his mid-term monetary policy review statement,” said the financial institution.

The central bank governor has hinted that he might review upwards the minimum bank capital levels in line with global trends to hedge against the risk of bank failures as happened in other countries.

Presently, commercial banks are required to have a minimum capital of $12,5 million, merchant banks $10 million and asset management companies $500 000.

As of June 2012, 23 out of 25 operational banking institutions (excluding POSB) were in compliance with the minimum capital levels while all asset management firms were compliant.

An economic analyst, Mr Peter Mhaka, said increasing minimum thresholds for banking institutions was a positive move that would see liquidity increasing on the market.

“Increasing minimum capital requirements for banks will raise liquidity on the market and this will have a knock-on effect on the economy as on-lending capital for business would improve.

“However, it is unfortunate that banks without the financial muscle are likely to be eliminated on the market,” he said.

Undercapitalised institutions are expected to face immediate high liquidity pressure as a temporary flight of deposits occurs in favour of banks perceived to be stable.

The banking sector is also expected to experience high borrowing costs as it tries to attract and retain deposits in order to meet its short-term liabilities.

Banks will also witness a significant change in their shareholding structure due to the introduction of fresh capital for compliance with the set capital thresholds.

The risk of failure remains inherent in the sector, as affirmed by problems that forced Royal and Genesis banks to surrender their licences and saw Interfin being placed under curatorship.

Zimbabwe’s minimum capital requirements for financial institutions presently remain low compared to regional counterparts.