Overhaul bank system: RBZ

of the financial sector.
The move has been necessitated by the need for measures to deal specifically with challenges faced by troubled banks, especially the length of curatorship periods.

The central bank is also seeking to enhance separate insolvency regimes for dealing with failed banking institutions.
RBZ Governor Dr Gideon Gono last week said the proposed laws cover corporate governance and compliance, troubled bank resolution and consolidated supervision.

“The proposed amendments also cover areas of financial disclosure, prompt corrective action programmes and Basel II amendments,” said Dr Gono.
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.

Proposals by the central bank come at a time when the financial sector is facing a 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.
Dr Gono said 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.

“We urge banking institutions to promote a savings culture in the economy through offering meaningful deposit rates and lowering bank charges.
“Banking sector liquidity remains a challenge due to the short-term nature of deposits, the absence of an active inter-bank market and lender-of-the-last-resort facility at the central bank,” said Dr Gono.
Total bank deposits increased 63 percent from US$2,57 billion as at December 31 last year to US$3,19 billion as at June 17 this year.

The level of credit support to the private sector in relation to deposits is largely comparable to regional and international averages, which range between 70 percent and 90 percent.
The ratio of loans to deposit has gradually
increased from 33 percent in April 2009 to 74 percent last month.

Dr Gono said since dollarisation most banks have been concentrating on restructuring and other cost-cutting measures, at the expense of staff training and upgrading of banking systems.
In a statement on the state of the economy in May this year, Finance Minister Tendai Biti said the banking system remained vulnerable with weak capitalisation, rising non-performing loans and a tight liquidity situation.

He said non-compliance to the minimum capital adequacy threshold by some small banks could worsen vulnerability in the sector.
As at March 31 this year 20 out of 25 operational banking institutions – excluding POSB, which is regulated under a separate statute – had complied with the central bank’s prescribed minimum paid-up capital requirements.