adminexternal savings and further allocates credit across space and time.
The sector therefore becomes very fragile and anything negative happening in the sector affects the entire economy – and the biggest danger is when the transacting public loses confidence in this crucial sector.
Every economy strives for an efficient banking sector, which reduces risks and uncertainties through hedging, pooling, sharing and pricing risks thus contributing to raising standards of living.
In Zimbabwe, the banking sector is a significant contributor to the economy, with a share of about 4 percent of GDP in 2010 and 2011.
The country experienced 10 years of economic recession that resulted in the banking public losing confidence after a spate of bank closures.
Banks had diverted from their core business delving into speculative tendencies and this phobia in people has proved to be very difficult to exorcise.
An estimated US$3 billion is circulating in banks and almost an equal amount is circulating outside the formal banking system.
The simple reason to is that people no longer have confidence it the banking system.
However, banks have transformed and the system is now credible but people are still very sceptical.
Reserve Bank Governor Dr Gideon Gono said banks should finalise their recapitalisation initiatives as we get into 2012 so that this sector starts contributing significantly to economic growth and development.
The governor made it clear that if certain banks fail to play their role there won’t be further social justification for their existence if they are not serving their communities effectively.
Against this background, we are likely going to see one or two banks closing shop unless they take serious investors on board.
Very few banks are yet to meet capital requirements and some of them are still negotiating with potential investors.
At a time when the banking public thought the financial sector problems of 2004 were a thing of the past, the same market that is still sceptical woke up to the news that Renaissance Merchant Bank was placed under curatorship.
It was debated why this happened, when we have a central bank that should be supervising and monitoring the health of banking institutions.
The RBZ, as the regulator, was then blamed for sleeping on the wheel but they have indicated that they were aware of the problems at Renaissance.
The RBZ extended the period of the curatorship period by two months to February 2012 and also extended the appointment of the curator, Reggie Saruchera, by the same period.
RMB was placed under curatorship in June this year for a period of six months to allow investigations and to institute corrective measures following underhand dealings that exposed the bank to a negative capital of US$16 million.
The primary purpose of placing the bank under curatorship was to protect depositors, preserve RMB’s assets and the stability of the financial sector and we hope this would be achieved by the end of the day.
This is one issue the banking public does not want to experience as we get into 2012 and beyond.
The central bank has proposed amendments to banking laws due to the challenges that were associated with the resolution of troubled banks especially the length of curatorship periods.
Given this background it is imperative for the central bank to have something legally binding to deal with issues of troubled bank and curatorship.
In most countries there are going efforts to develop or enhance separate insolvency regimes for dealing with failed banking institutions and Zimbabwe should join the bandwagon.
In conjunction with the International Monetary Fund, the central bank has enhanced the Troubled and Insolvent Banks Policy to facilitate timely identification, rehabilitation and resolution of problem banks.
This could be the reason why Dr Gono said the country’s financial sector is safe and sound.
According to the policy, RBZ will ensure that non-compliant banks exit the market with minimal disruption to the banking sector and inconvenience to the public.
This is the reason why I am saying banks should get their act together because as we get into the New Year there would be a number of transformations and players in this market should brace for the new changes.
It is not going to be an easy game to get there but hard work by both parties, the central bank and the banks. Unfortunately, we are going to see weakly financial, institutions merging or falling by the way side.
It would be a noble thing if banks merge and come up with a formidable structure than being forced to merge or just fold.
Proposed laws also cover corporate governance and compliance, troubled bank resolution and consolidated supervision.
Meanwhile, the central bank has instituted a comprehensive financial disclosure framework, which ensures that accurate, meaningful, transparent and timely information is provided by borrowers to investors and creditors.
The proposals by the central bank come at a time when the financial sector is facing many challenges, although it has remained stable since dollarisation.
Prevailing liquidity risk has exposed many banks still dealing with liabilities incurred during the past 10 years of economic depression.
Liquidity risk is the risk that a financial institution encounters in meeting the obligations of its financial liabilities and often arises from the fact that assets and liabilities have differing maturity periods.
The protracted recapitalisation process of some banks and limited lines of credit and low savings, due to low salaries, remain some of the challenges for the sector.
To overcome this barrier, banking institutions are expected to promote a savings culture in the economy through offering meaningful deposit rates and lowering bank charges.
The banking system has remained vulnerable with weak capitalisation, rising non-performing loans and a tight liquidity situation.
Non-compliance to the minimum capital adequacy threshold by some small banks could worsen vulnerability in the sector.
Online Reporter