Business / Economy
Gono release statement on measures to improve liquidity
17 Feb 2012 at 09:00hrs | Views
Yesterday the RBZ Governor released a statement on measures to improve liquidity.
The salients:
As at 03 February total bank deposit were $3.45 billion and total loan $2.78 billion implying a loan to deposit ratio of 80.6%.
The Finance Minister ordered the five banks that remain under-capitalised to merge in order to have a strong and secure banking sector. The Central has been mandated to develop a framework for the mergers. No undercapitalised bank will remain operational from 01 April 2012.
The Finance Minister also announced that with effect from 1 March 2012 banking institutions will be required to maintain a maximum of 25% of their nostro accounts balances offshore to meet their day to day international payment obligations. The maximum will rise to 30% w.e.f. 01 June 2012.
The RBZ will issue Discountable and Tradable Instruments to willing participant banks against RBZ Statutory Reserve liabilities of approximately $83.6 million. The maturity will range between 2 and 4 year with interest rates of 2.5% to 3.5% p.a.
The Discountable and Tradable Instruments will have the following features:
- Prescribed asset status;
- Liquid asset status;
- Pay Half yearly coupon;
- Tax exemption;
- Tradable; and
- Lender of Last Resort security status.
Institutions not willing to participate in the Discountable and Tradable Instruments will have the option of being issued with 15 year bonds at 3% p.a.
Treasury will disburse $23 million towards the Lender of Last Resort facility at the RBZ during the course of the coming week. It is estimated that an amount of $150 million is required for the smooth functioning of the Lender of Last Resort.
Efforts are underway to mobilise additional resources in excess of $73 million.
The measures are anticipated to result in improved liquidity. However, we remain wary about the banking sector given the pressures on the asset quality. In our view, most of the lending decisions have been based on the size of the collateral being offered and relationships rather than cashflow.
Good information is also scarce in the absence of a national credit bureau. Furthermore, the value of the collateral, which is real estate in most cases, tends to be overstated and inevitably harder to realise if the need arise.
This has allowed the official NPLs numbers to be low. In our view, most banks are sitting on a significant unknown quantity of NPLs and these continue to grow. In addition the loan to deposit ratio remains high at over 80%.
The salients:
As at 03 February total bank deposit were $3.45 billion and total loan $2.78 billion implying a loan to deposit ratio of 80.6%.
The Finance Minister ordered the five banks that remain under-capitalised to merge in order to have a strong and secure banking sector. The Central has been mandated to develop a framework for the mergers. No undercapitalised bank will remain operational from 01 April 2012.
The Finance Minister also announced that with effect from 1 March 2012 banking institutions will be required to maintain a maximum of 25% of their nostro accounts balances offshore to meet their day to day international payment obligations. The maximum will rise to 30% w.e.f. 01 June 2012.
The RBZ will issue Discountable and Tradable Instruments to willing participant banks against RBZ Statutory Reserve liabilities of approximately $83.6 million. The maturity will range between 2 and 4 year with interest rates of 2.5% to 3.5% p.a.
The Discountable and Tradable Instruments will have the following features:
- Prescribed asset status;
- Liquid asset status;
- Pay Half yearly coupon;
- Tax exemption;
- Tradable; and
- Lender of Last Resort security status.
Institutions not willing to participate in the Discountable and Tradable Instruments will have the option of being issued with 15 year bonds at 3% p.a.
Treasury will disburse $23 million towards the Lender of Last Resort facility at the RBZ during the course of the coming week. It is estimated that an amount of $150 million is required for the smooth functioning of the Lender of Last Resort.
Efforts are underway to mobilise additional resources in excess of $73 million.
The measures are anticipated to result in improved liquidity. However, we remain wary about the banking sector given the pressures on the asset quality. In our view, most of the lending decisions have been based on the size of the collateral being offered and relationships rather than cashflow.
Good information is also scarce in the absence of a national credit bureau. Furthermore, the value of the collateral, which is real estate in most cases, tends to be overstated and inevitably harder to realise if the need arise.
This has allowed the official NPLs numbers to be low. In our view, most banks are sitting on a significant unknown quantity of NPLs and these continue to grow. In addition the loan to deposit ratio remains high at over 80%.
Source - imara
