Business / Economy
Gono, Biti clash on banks capital requirements
04 Aug 2012 at 15:02hrs | Views
RESERVE Bank Governor Dr Gideon Gono says there is no going back on the new US$100 million capital requirements for banks, but Finance Minister Tendai Biti says he needs to meet the central bank chief over the issue.
Speaking on the sidelines of a Press conference in Harare yesterday, Minister Biti said he wanted the new minimum capital thresholds clarified.
"I am going to meet the governor and we will clarify on that (issue of new minimum capital reserves) and we will issue a statement on that," said Minister Biti.
However, Dr Gono says the new thresholds are critical to achieving a sound financial system.
Addressing bankers following an appeal by the Bankers Association of Zimbabwe for a reduction of the minimum capital thresholds to not more than US$20 million for commercial banks by December 2013, Dr Gono said there was a positive correlation between higher capital levels and profitability, bank charges, credit extension and confidence.
"Banking institutions with low capital levels, such as Royal Bank and ZABG, as well as those with illiquid capital such as Agribank and Trust, have higher incidence of reporting losses," Dr Gono said.
"A low capital base restricts a banking institution's capacity to underwrite sufficient business and generate enough revenues to meet its operational costs."
While BAZ president Mr George Guvamatanga said the association was yet to come up with a position on the increase in thresholds, his deputy Mr Sam Malaba had written to the central bank appealing for downward revision of capital thresholds.
BAZ said the increase in capital thresholds would have negative consequences for the economy and the banking sector. It said banks would be forced to curtail lending significantly if not sure about complying within stipulated deadlines.
It added the new capital levels would affect mobilisation of lines of credit.
"Confidence in the banking sector will be further eroded resulting in further financial disintermediation with more money circulating outside the banking sector and further externalisation of capital," said Mr Malaba who is also Agribank managing director.
"The deteriorating macro-economic environment and impending elections will make it difficult for banks to attract additional capital at this point in time. In the current economic climate shareholders are unlikely.
The RBZ governor queried why banks had chosen to focus on one aspect of his Mid-Term Monetary Policy while overlooking other challenges facing the banking sector.
These, he said, included high lending rates, low deposit rates, high interest charges, corporate governance issues, misuse of depositors funds, liquidity challenges, short-term lending, thin capital levels, country risk and inadequate lending resources.
He challenged banks to lower bank charges and interest rates if they entertained an idea of a review of the capital thresholds.
Dr Gono said banks were charging punitive interest rates and bank charges on loans. Royal Bank was closed a few weeks after Genesis Investment Bank and Interfin Bank had closed shop.
Last year, Renaissance Merchant Bank was placed under curatorship after facing liquidity challenges.
Under the new requirements, commercial banks would be required to have US$100 million in minimum capital requirements by 2014, up from the current US$12,5 million.
Merchant banks will be required to have capital thresholds of US$100 million, building societies from US$10 million to US$80 million and finance and discount houses from US$7,5 million to US$60 million.
Banks were given two years to meet the new capital requirements and must be 75 percent compliant by the end of 2013. Minister Biti said Zimbabwe was not over banked.
He stressed the need for financial institutions to come up with innovative products that meet the needs of depositors.
"We are not over banked, but we are under-banked because you cannot have a situation where 77 000 people share one bank. The issue is not about the number of banks, but the quality of product," he said.
Speaking on the sidelines of a Press conference in Harare yesterday, Minister Biti said he wanted the new minimum capital thresholds clarified.
"I am going to meet the governor and we will clarify on that (issue of new minimum capital reserves) and we will issue a statement on that," said Minister Biti.
However, Dr Gono says the new thresholds are critical to achieving a sound financial system.
Addressing bankers following an appeal by the Bankers Association of Zimbabwe for a reduction of the minimum capital thresholds to not more than US$20 million for commercial banks by December 2013, Dr Gono said there was a positive correlation between higher capital levels and profitability, bank charges, credit extension and confidence.
"Banking institutions with low capital levels, such as Royal Bank and ZABG, as well as those with illiquid capital such as Agribank and Trust, have higher incidence of reporting losses," Dr Gono said.
"A low capital base restricts a banking institution's capacity to underwrite sufficient business and generate enough revenues to meet its operational costs."
While BAZ president Mr George Guvamatanga said the association was yet to come up with a position on the increase in thresholds, his deputy Mr Sam Malaba had written to the central bank appealing for downward revision of capital thresholds.
BAZ said the increase in capital thresholds would have negative consequences for the economy and the banking sector. It said banks would be forced to curtail lending significantly if not sure about complying within stipulated deadlines.
It added the new capital levels would affect mobilisation of lines of credit.
"Confidence in the banking sector will be further eroded resulting in further financial disintermediation with more money circulating outside the banking sector and further externalisation of capital," said Mr Malaba who is also Agribank managing director.
The RBZ governor queried why banks had chosen to focus on one aspect of his Mid-Term Monetary Policy while overlooking other challenges facing the banking sector.
These, he said, included high lending rates, low deposit rates, high interest charges, corporate governance issues, misuse of depositors funds, liquidity challenges, short-term lending, thin capital levels, country risk and inadequate lending resources.
He challenged banks to lower bank charges and interest rates if they entertained an idea of a review of the capital thresholds.
Dr Gono said banks were charging punitive interest rates and bank charges on loans. Royal Bank was closed a few weeks after Genesis Investment Bank and Interfin Bank had closed shop.
Last year, Renaissance Merchant Bank was placed under curatorship after facing liquidity challenges.
Under the new requirements, commercial banks would be required to have US$100 million in minimum capital requirements by 2014, up from the current US$12,5 million.
Merchant banks will be required to have capital thresholds of US$100 million, building societies from US$10 million to US$80 million and finance and discount houses from US$7,5 million to US$60 million.
Banks were given two years to meet the new capital requirements and must be 75 percent compliant by the end of 2013. Minister Biti said Zimbabwe was not over banked.
He stressed the need for financial institutions to come up with innovative products that meet the needs of depositors.
"We are not over banked, but we are under-banked because you cannot have a situation where 77 000 people share one bank. The issue is not about the number of banks, but the quality of product," he said.
Source - TH
