US$100m RBZ fund to aid economy

a US$100 million fund to capacitate the Reserve Bank as the lender of the last resort and inter-bank market trading.
Finance Minister Tendai Biti in his 2012 National Budget statement said inter-banking market trading remained largely inactive due to inadequacy of financial resources.

A lender of last resort is an institution, usually the central bank, which offers loans to banks or other eligible institutions facing liquidity problems, or considered high risk or near collapse.

In inter-bank trading, banks deal with one another directly, exchanging different currencies.
Once there is a funding instrument, it means banks would then be able to undertake inter-banking transactions and secure overnight accommodation.
Overnight accommodation reduces exposure to other banks.

Banks are currently lending out limited amounts to avoid exposure and maintain certain amounts as buffers.
The Government last year made available US$7 million to the Reserve Bank for its function as the lender of the last resort. It was opened in February this year with acceptable security being deeds of transfer on immovable property.

“I am therefore pleased to announce the introduction of a US$100 million fund, jointly funded by some international financial institutions and a regional financier,” said the minister.

“A technical team working on the operational modalities for the fund has already been constituted and will be communicating the terms and conditions once they are finalised.”

There has been limited banking activity on the market due to lack of capacity of the lender of last resort.
Bankers’ Association of Zimbabwe president Mr John Mushayavanhu said banks were still waiting for the minister to announce the framework and modalities of the fund before making an assessment of its impact on the banking system.

“We do not know how it is going to operate, as the minister said, work is still in progress,” said Mr Mushayavanhu. “We do not know how the money would be made available.”

Former Finance Minister Simba Makoni said banks were owed US$83 million in statutory reserves and if the funds were managed by the central bank, they might be used to pay off the banks.

Banks have been pressing for this payment.
Despite an improved deposit base and increased financial intermediation, deposits in banks are largely of a transitory short-term nature.