A third of banks have not yet complied with the Reserve Bank’s minimum capital requirements, reflecting the fragility and limited capacity of banks to support efforts to turnaround the economy, a Reserve Bank of Zimbabwe official has said.RBZ Deputy Governor Dr Kupukile Mlambo made the revelation in his presentation at the Chamber of Mines’ 75th AGM in Victoria Falls last week.
“About a third of the banking institutions are not in compliance with prescribed minimum capital requirements (of the Reserve Bank of Zimbabwe). (Most) banks are struggling to attract foreign investors,” Dr Mlambo said.
Banks were required to have met the $25 million minimum capital threshold by December 2013 and were expected to submit a compliance plan for the US$100 million minimum capital level by next month, although it will be effective in 2020.
Dr Mlambo said that while the financial sector had a huge role to play in supporting economic recovery, with Government’s Zimbabwe Agenda for Sustainable Socio-Economic Transformation requiring $27 billion between 2014 and 2018, banks had little capacity to support the economy.
The fragility of banks, which cannot fund major projects, also reflects in the poor financial performance of the institutions, which posted a combined after tax income of $20 million in the year to December 2013, with five recording losses — two of them as much as $60 million.
Dr Mlambo said local banks’ combined total capitalisation of $800 million was smaller than the capital of South Africa’s fifth-largest bank, Capitec, which has a balance sheet of $900 million.
While banks had played a major role financing the economy after dollarisation in 2009, credit to productive sectors drastically fell in line with the decline in growth in deposits.
Loans to productive sectors were $263 million in June 2009, growing exponentially to $3,7 billion in September 2013, but have come down to $3,6 billion at December 2013; the bulk of it going to individuals.
Dr Mlambo said growth in non-performing loans was reflective of how firms were struggling, further straining banks’ capacity to keep supporting productive sectors of the economy.
Economic problems in the country have resulted in the liquidity situation not improving; rather, the problems have worsened with deposits transitory, confidence in banks low, interbank market non-existent while the RBZ currently cannot perform its lender of last resort function.
Against this backdrop, Dr Mlambo said there was need for additional sources of funding, which called for measures to improve confidence in the economy through rationalising investment laws.
He also said it was important that the country taps into diaspora funds, with remittances more than doubling from $198 million in 2009 to $454 million in 2013.
He said unrecorded diaspora inflows were estimated at $1,6 billion.
The RBZ Deputy Governor also said it was important to implement the IMF’s staff-monitored programme to open avenues for possible debt forgiveness by international lenders.
Zimbabwe owed foreign lenders about $6,4 billion as of December 2013.
As Government battles a myriad of challenges militating against the economy, Dr Mlambo said it was important that the multi-currency regime adopted in February 2009 continued.
The Chamber of Mines of Zimbabwe’s AGM ran from May 22 to May 24 under the theme “Resetting the Role of the Mining Sector as the Cornerstone of the Zimbabwe Agenda for Sustainable Socio-Economic Transformation Blueprint”.