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Reserve Bank Governor Dr Gideon Gono has raised minimum capital thresholds for banking institutions by up to 900 percent, as he steps up efforts to bring about a stable financial system.

 

Presenting the Mid-Term Monetary Policy Review Statement yesterday, the RBZ Governor said commercial and merchant banks would be required to have minimum capital of $100 million from $12,5 million and $10 million respectively.

Minimum capital requirements for building societies were also raised from $10 million to $80 million, finance and discount houses from $7,5 million to $60 million and $1 million to $5 million for microfinance institutions.

These should be fully compliant by June 2014, but should meet 25 percent of the new capital levels by the end of this year.

Commercial banks would have to raise their minimum capital requirements by $12,5 million by the end of this year.

The financial institutions are required to be 75 percent and 100 percent compliant by 31 December 2013 and 30 June 2014 respectively.

“Every banking institution whose minimum paid up capital does not comply with the respective prescribed levels will be required to submit a detailed recapitalisation plan by September 2012.

“The increase in minimum capital levels for banking institutions has been necessitated by the dynamic nature of the financial landscape, regulatory requirements, increase in competition and economic uncertainties, which has placed an unprecedented pressure on banks to be adequately capitalised," said Dr Gono.

The central bank governor said there would not be extensions to the deadline "by one hour or one day" and urged institutions that fail to comply to either merge operations or be acquired by financially stronger entities.

Challenges around securing funding to meet current regulatory capital thresholds resulted in Genesis and Royal banks surrendering their licences, while Interfin was placed under curatorship.

The increase in minimum capital thresholds comes as the central bank also expressed concern over the reemergence of financial improprieties that led to the financial crisis of 2003.

Dr Gono said bigger economies, such as South Africa and Nigeria, were supported by fewer banks compared to the situation in Zimbabwe.

South Africa with a GDP of $400 billion in 2011 is supported by 32 banks while Zimbabwe with a GDP of only $10 billion has 26 banks.

Dr Gono also expressed concern at the economic situation in the country, which has resulted in several companies closing down, tight liquidity conditions and deteriorating infrastructure.

He also blamed the economic crisis on policy inconsistencies and the effects of illegal sanctions imposed by the West.

"The economy is in dire straits," said Dr Gono. "We are in a deep crisis. The day we stop blaming each other is the day this economy will start its long overdue recovery. There is need for action.

"There has been no printing of Zimbabwe dollars, no quasifiscal activities, no mechanisation, no tractors, no domineering RBZ but the challenges remain and are worse off this time …. we need to put our heads together and tackle the challenges."

There was need to fully appreciate the impact that liquidity constraints had on the economy and suggested measures to improve liquidity including increasing exports, foreign investment, offshore credit, Diaspora remittances, portfolio investments and raising the level of confidence in the economy.

His remarks come a few weeks after Finance Minister Tendai Biti cut his economic growth forecast for this year from 9,4 percent to 5,6 percent citing poor performance in key sectors.

"We are in a deep crisis and we need to get back to basics."

The Confederation of Zimbabwe Industries last week declared an economic crisis and called for immediate action to avert worsening of the situation.

Dr Gono also urged banking institutions to rationalise interest rate structures and bank charges to attract more deposits.

The Reserve Bank and the Bankers’ Association of Zimbabwe will thus develop a format of disclosure requirements on a quarterly basis for bank charges and interest rates.

Furthermore, Dr Gono said the central bank was fully committed to indigenisation, including in the banking sector, but expressed reservations concerning its implementation.

He suggested, as directed by the RBZ board, that implementation of the policy be done in a manner that preserves confidence in the economy, as any adverse developments could grind economic activity to a halt.

Dr Gono called for harmonisation of the indigenisation and economic empowerment provisions with other legislation such as the Banking Act and Regulations, RBZ Act, Exchange Control Act, Mines and Minerals Act, and the Zimbabwe Investment Act.

Source: TC