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Harare Bureau
THE interbank market is set to resume after government and the African Export Import Bank entered into an agreement to introduce a facility and associated instruments to alleviate the liquidity challenges confronting the financial systems in the country.
Presenting the 2014 National Budget, Finance and Economic Development Minister Patrick Chinamasa said the government would mobilise $100 million to restart the interbank market to restore confidence in the financial service sector.
The Afreximbank Trade Debt-backed securities will be provided as debt securities that could be used as collateral for interbank funds placements to promote interbank dealings among Zimbabwean banks active in trade finance, according to the terms of a memorandum of understanding signed on by Afreximbank, the Zimbabwe Ministry of Finance and Economic Development and the Reserve Bank of Zimbabwe.
“Our objective is to use this facility to enable trade finance banks in Zimbabwe to access much-needed liquidity from cash-surplus banks in the country, thereby increasing their capacity to deepen their trade finance activities,” said Jean-Louis Ekra, president of Afreximbank, after signing the MoU in Cairo on Monday.
Minister Chinamasa, and Dr Charity Dhliwayo, acting governor of the Reserve Bank of Zimbabwe, had signed it on January 31 on behalf of the Zimbabwean parties.
The liquidity crunch resulted from the RBZ not taking on the role of lender of last resort.
“This will create confidence and improve liquidity situation which has been affecting the smooth flow of financial intermediaries,” said an analyst with a local research firm.
“It will also help RBZ bank to participate in financial intermediation by influencing market interest rates.”
Analysts say the general liquidity in the market would improve as less liquid banks will be able to access liquidity held in the “traditionally safe banks.” “Banks will be able to concentrate on doing their core business, which is lending as when they have a short position they are able to go into the market and borrow to cover short-term liquidity gaps. This will also unlock liquidity that is held in other banks,” said another analyst.
Ekra said that Afreximbank’s decision to introduce the facility was motivated by its recognition of the serious constraints limiting the access of Zimbabwe’s trade finance banks to funding as a result of the liquidity challenge confronting the financial sector.
Under the terms of the MoU, AFTRADES would be structured as a collateral swap involving the issuance of securities by Afreximbank to participating banks in exchange for trade–related collateral or securities presented by those banks.
The government, through the Ministry of Finance and Economic Development, will serve as the facility’s guarantor and liquidity support contributor, up to agreed levels, while the RBZ will grant the regulatory approvals required by the participating banks.
In addition, the central bank will provide the infrastructure required for the implementation and administration of the facility. Only solvent banks not facing fundamental problems of viability will be eligible for the facility, according to the MoU.
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