THE inter-bank market is set to resume after Government and the African Export Import Bank entered into an agreement to introduce a facility and associated instruments to alleviate the liquidity challenges confronting the financial systems in the country. Presenting the 2014 National Budget, Finance Minister and Economic Development Patrick Chinamasa said the Government would mobilise US$100 million to restart the interbank market to restore confidence in the financial service sector.
The Afreximbank Trade Debt-backed Securities will be provided as debt securities that could be used as collateral for interbank funds placements to promote interbank dealings among Zimbabwean banks active in trade finance.
This is according to the terms of a memorandum of understanding signed by Afreximbank, the Zimbabwe Ministry of Finance and Economic Development and the Reserve Bank of Zimbabwe.
“Our objective is to use this facility to enable trade finance banks in Zimbabwe to access much-needed liquidity from cash-surplus banks in the country, thereby increasing their capacity to deepen their trade finance activities,” said Jean-Louis Ekra, president of Afreximbank, after signing the memorandum of understanding in Cairo on Monday.
Minister Chinamasa, and Dr Charity Dhliwayo, acting governor of the Reserve Bank of Zimbabwe, had signed it on January 31 on behalf of the Zimbabwean parties.
“This will create confidence and improve liquidity situation which has been affecting the smooth flow of financial intermediaries,” said an analyst with a local research firm.
“It will also help RBZ to participate in financial intermediation by influencing market interest rates.”
Mr Ekra said Afreximbank’s decision to introduce the facility was motivated by its recognition of the serious constraints limiting the access of Zimbabwe’s trade finance banks to funding as a result of the liquidity challenge confronting the financial sector.
The Government, through the Ministry of Finance and Economic Development, will serve as the facility’s guarantor and liquidity support contributor, up to agreed levels, while the RBZ will grant the regulatory approvals required by the participating banks.
In addition, the central bank will provide the infrastructure required for the implementation and administration of the facility. Only solvent banks not facing fundamental problems of viability will be eligible for the facility, according to the MoU.
However, an analysis by the Financial Traders Association said the structure discriminates against the very banks that need the facility.
“This may end up increasing the costs as the institutions have to go through intermediaries,” said FTAZ.