RBZ reviews minimum bank capital requirements
CENTRAL bank governor John Mangudya yesterday announced US-dollar-benchmarked minimum capital requirements for the banking sector, which he said will safeguard local financial institutions.
These are set to ensure that banks and depository institutions’ holdings are not dominated by investments that increase the risk of default and are able to sustain operating losses while still honouring withdrawals.
Large indigenous commercial banks and all foreign banks will now be required to have a minimum of US$30 million, while US$20 million has been set for small commercial banks, merchant banks, building societies, development banks, finance and discount houses.
“The effective date of compliance with the new minimum capital requirements is December 31, 2020. For new applications for bank or microfinance licences, the new minimum capital requirements are applicable with immediate effect. Banking institutions are, therefore, required to submit capital plans to the (central) bank by June 30, 2020, clearly indicating their chosen strategy,” said Mangudya in his monetary policy statement he issued in the capital yesterday.
Deposit-taking microfinance banks and credit only microfinance institutions are now required to have US$5 million and US$25 000 respectively.
Mangudya said this also is in accordance with international best practices.
The central bank czar said the Reserve Bank of Zimbabwe would issue corporate bonds to the 200 firms which own half of the $34,5 billion worth of deposits in the country to make use of excess liquidity.
Mangudya said dealing with the uneven distribution of liquidity was critical at a time the majority of the Zimbabwean population is struggling to make ends meet in an economy with a huge output gap.
“We are coming up with specific bonds to those with excess money. If you use a blunt instrument like statutory reserves you will only hit the bank, you don’t touch the money of those with excess money.
“Those 200 entities, they range from the lowest with $2 million while the highest has around $1,5 billion,” Mangudya said.
The central bank boss said the clamping down on liquidity or stock of money is the key focus area that the RBZ uses to manage inflation and the exchange rate.
“The bank is, therefore, committed to… regulate the amount of money supply in the economy and align it with the desired inflation and exchange rate levels.
“This framework will be operationalised through the use of existing open market operations tools that include Treasury Bills, Savings Bonds, Corporate Bonds, Statutory Reserve Requirements and specific liquidity management instruments to deal with the uneven distribution of deposits in the economy,” he said.
The level of liquidity or money supply in the economy as measured by total banks’ deposits stood at $34,5 billion as at December 31, 2019, composed of $22,0 billion (64 percent) in local currency and $12,5 billion (US$785 million) or 36 percent in foreign currency.
He added that some of the firms have been shipping money to the black market in their bid to buy foreign currency and store value.
“The largest population in Zimbabwe, they don’t have access to RTGS. They have no excess RTGS. People are not borrowing from banks to go and buy foreign exchange on black market, none of that is happening. Banks give us information and they can’t do that because they will be shooting themselves in the foot.
“They can’t even give money for private sector funding, this is why (Monetary Policy Committee) MPC is supplementing $1,5 billion so that the banks continue to lend. People with excess money in their pockets are the ones who want to buy money (on the black market) to preserve value,” Mangudya said.