adminto fend off the adverse effects of the global economic crisis that threatens to engulf developing economies.
The desire by the central bank, true to its key mandate, to foster stability in the sector against all odds, should enable the economy to stand firm and achieve its projected growth of 9,4 percent, everything being equal.
Indeed, the financial sector is the heart of the economy, playing an intermediary role whose effectiveness is dependent on the health of the said sector. It is in this vein that there can be no substitute for a stable financial sector for any economy. The current mayhem on the global stage attests to this.
Dr Gono put it aptly: “The meaningful recovery of the Zimbabwean economy is also contingent upon increased financial intermediation by the country’s banking sector. The intermediary role of banks remains critical in the redeployment of surplus
investible funds into key productive sectors of the economy.
“This is particularly so given persistent liquidity challenges that have lingered in the economy since the introduction of the multiple currency system.”
Hence the measures announced by the central bank governor in his monetary policy should induce more stability and nip in the bud any factors threatening to affect and infect the economy.
The central bank has generally given a clean bill of health to the banking sector but pockets of instability have remained present here and there. These need to be addressed to limit or eliminate any contagion effect to the rest of the financial sector, hence the economy.
It is with this in mind that we support the 14-day ultimatum given to undercapitalised banks to put their houses in order. On numerous occasions the apex bank has extended deadlines for recapitalisation but it was about time that it became more decisive.
Of course, we understand that no one would want to superintend over a collapsing bank but where all else has been tried, the most logical channel should be followed and in this instance, some banks may just have to call it quits.
Their situation may also be compounded by the fact that investors have become extremely cautious in this environment to the extent that it takes a lot for them to decide to pour money into any project.
Were things different, joint venture partners for some of the ailing banks would have been found a long time ago.
We certainly will not celebrate over the demise of any institution and maybe we may not see any of them go under as they have largely said they are at various stages of finalising deals to recapitalise their ventures. Only time will tell and the clock has a funny way of ticking faster than normal when one is in a desperate situation.
The remaining 13 days may seem like 13 seconds for those still frantically searching for funds.
Indeed, the hour is nigh for the struggling banks. The Minister of Finance Tendai Biti and Dr Gono have jointly stated that where possible shareholders should relinquish part of their equity to attract fresh capital but some have not taken heed. It’s easy to discern that banks such as BancABC are now sitting at the same table with the big guys in the sector because their shareholders saw reason in reducing their stake to allow those with the financial wherewithal to take the bank to the next level.
This has paid dividends and the results are there for all to see.
Furthermore, the central bank has always recommended mergers and acquisitions to keep the smaller banks alive but this option has not been considered by many of the challenged banks. Maybe the next few days will witness a change of heart.
Ideally, we would not want to see any bank going under but if they fail to present concrete recapitalisation strategies by February 14, the Ides of March are come!
The good thing about it all is that even if the affected banks all fold, the sector will not be affected that much unlike the 2004 crisis that saw the entire sector scurrying for cover when a few of the banks were placed under curatorship.
The banking sector is very sensitive but the facts on the ground in terms of numbers and size show that the demise of the smaller banks would not be of much effect to the entire sector. This is the assurance coming from Dr Gono.
“The weak and troubled banks in the sector are few, small and of low systemic importance,” quipped the RBZ boss.
These institutions are said to have a combined market share of below 5 percent in terms of total assets, deposits and loans.
That aside, factors such as volatile deposits, lack of an effective lender of last resort, market illiquidity and the absence of an active interbank market affecting the banking sector need to be watched closely.
The central bank says Zimbabwe’s banking laws will soon be amended to strengthen the Troubled and Insolvent Bank Resolution Framework in line with global best practice.
Furthermore, the submission of stress test results to the apex bank every quarter should help the bank detect any challenges and act timeously.
Adherence to strict corporate governance systems, establishment of a Credit Reference Bureau and quarterly publications of banks’ performances and measures to foster and monitor stability in the banking sector should help consolidate the sector’s stability.
A multi-disciplinary financial stability committee comprising RBZ, the Insurance and Pensions Commission, the Securities Commission and the Deposit Protection Board should also help uphold discipline in the sector.
The central bank will certainly need to come out in full force and should stop at nothing to ensure the restoration of sound banking and governance systems and overall discipline in a sector that has previously proved susceptible to speculative behaviour and other forms of indiscipline.
Productive sectors of the economy are in dire need of funding from banks and we hope that efforts to induce liquidity in the market and behind-the-scenes engagements with bilateral and multilateral lenders will yield results.
The symbiotic relationship between the financial sector and the rest of the economy can never be taken for granted.
In God I trust!
Online Reporter
dyton mupawaenda