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RBZ extends bank capitalisation deadline

The Reserve Bank of Zimbabwe (RBZ), has extended by a year the deadline for local financial institutions to meet the new minimum capital requirements.

Reserve Bank of Zimbabwe Governor Dr John Mangudya (Picture by Christopher Goodney/Bloomberg)
Reserve Bank of Zimbabwe Governor Dr John Mangudya (Picture by Christopher Goodney/Bloomberg)

The regulator said it had taken into consideration the impact Covid-19 has had on the financial services sector.

Said RBZ governor Dr John Mangudya in the mid-term Monetary Policy Statement (MPS) released on Friday:

“Cognisant of the prevailing challenging environment exacerbated by the negative impact of the Covid-19 pandemic, the bank is extending the deadline for compliance with the requirement for meeting the minimum capital levels, by one year from 31 December 2020 to 31 December 2021.

“In this regard, banking institutions are required to submit to the Bank updates of capitalisation plans by 31 December 2020 and 30 June 2021,” said Dr Mangudya.

Earlier in January, the RBZ Governor said large indigenous banks and all foreign banks will now need to have minimum capital equivalent to US$30 million, effectively hiking the threshold.

Last year the central bank had set 2020 minimum capital threshold for large indigenous commercial and all foreign banks at $200 million, but kept them at $25 million for small commercial, merchant and development banks, building societies, finance and discount houses.

Commercial banks, merchant banks, development banks, finance and discount houses are now required to have minimum capital equivalent to US$20 million while deposit taking institutions must have an equivalent of US$5 million.

The minimum capital threshold for micro-finance institutions has been set at US$25 000 local currency equivalent.

Analysts at regional-focused Global Credit Ratings (GCR) Research, have already said that the Covid-19 pandemic will eat away at local banks’ capacity to meet the new minimum requirements.

“The traditional banking model in Zimbabwe is breaking, with banks moving to fixed assets to preserve capital rather than lending or maintaining adequate liquidity.

“(Banks’) asset quality is expected to deteriorate in 2020, due to erosion of household incomes and some corporate closures,” said the analysts in special report on the impact of Covid-19 on Zimbabwean financial institutions.

They add that the health pandemic’s impact on South African economy — which is Zimbabwe’s largest trading partner and where a huge Diasporan community dwells — will adversely affect the local economy in terms of foreign currency generation.

“The cash strapped financial institutions have been facing persistent foreign currency shortages for years. The level of local money supply is too high and needs to be supported by foreign currency reserves.

“In addition to exports, the economy still relies on Diaspora remittances for forex funding, most of which is from South Africa. Severe Covid-19 outbreaks may significantly slow down business in South Africa, thereby, affecting incomes of the employees, especially in non-regulated industries where most Zimbabweans are employed,” said GCR Research at the beginning of the second quarter.

“This in turn will affect the much-needed foreign currency availability. The Covid-19 imposed import restrictions may curb demand for foreign currency, which might stabilise the parallel exchange rate.”

Meanwhile, some observers had called for the monetary authorities to waive capitalisation of banks from United States dollars to Zimbabwe dollars.

They said high capital levels, though important, are not synonymous with stability. The Chronicle