‘Zim banks reluctant to trade among themselves’

report on Zimbabwe said banks were still not willing to trade among themselves despite the market being liquid.
According to the Reserve Bank of Zimbabwe, as of mid-March the market had a surplus of US$386 million.
“However, there is relative immobility of funds within the banking sector.

“The immobility is attributed to factors that include an inactive money market, absence of Government paper in the market due to cash budgetary framework,” read part of the AfDB report.
The paralysis of funds has also been attributed to lack of acceptable security for borrowing and inactive inter-bank market.
Finance Minister Tendai Biti in his 2012 National Budget statement said inter-bank market trading remained largely inactive due to inadequacy of financial resources.

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.

Minister Biti also announced in his 2012 National Budget that Government and an international financial institution would unveil a US$100 million fund to capacitate the central as the lender of the last resort and inter-bank market trading.
The regulator is yet to come back to the market with details of the fund.

Minister Biti said the instruments would promote inter-bank trading and allow banks to use tradable paper as security when accessing the lender of last resort funds.

This will ensure utilisation of resources which banks have been failing to access.
Institutions not willing to participate in the scheme would have an option of being issued with 15-year bonds at an interest of 3 percent per annum.

Currently, deposits are at US$4 billion.
The increase in bank deposits is attributed to increase in long-term deposits, albeit from a low base.
The increase in bank deposits can also be attributed to an inflow of funds from nostro account balances that had been held in foreign banks, tobacco sales and improving depositor confidence in the banking sector.