Business / Economy
Zimbabwe Monetary Policy Statement – January 2012
01 Feb 2012 at 08:31hrs | Views
The Reserve Bank of Zimbabwe (RBZ) yesterday released the January 2012 Monetary Policy Statement. The RBZ notes that despite the lack of a lender of last resort, illiquidity in the market, limited lines of credit and a lack of an active money market, developments in the banking sector are encouraging considering and most of the banking institutions appear to be stable. However, the issue of increasing NPLs is a major concern. We highlight below the key points:
Deposits
Deposits grew over the period January to November 2011 by an average of US$ 88.4m on a monthly basis, whilst consolidated deposits (net of interbank deposits) amounted to US$3.2bn as at 30 November 2011 up 41.7% from 30 November 2010.
Year on year growth in deposits has been on the decline from 80% in September 2010 to 40% in September 2011 but rose in November 2011 to 50%. Deposits however continue to be of a short term nature with short term deposits constituting 89.3% of the total deposits in the banking sector as at 30 November 2011.
Lending
Total credit to the private sector increased by 84.3% from US$1.6bn in November 2010 to US$ 2.9bn in November 2011. As a result of the growth in the deposit base and expanded credit, the loan to deposit ratio (excluding offshore lines of credit) increased from 61.9% in December 2010 to over 71.7% by end of December 2011. Including the offshore credit lines the loan to deposit ratio for December 2011 was over 87%. A large proportion of the banking sector credit is also of a short term nature.
Credit to the private sector comprised of loans and advances (83%), mortgages (6.2%), Bankers' Acceptances (BAs) (5.8%), other investments (2.7%) and bills discounted (2.3%). Loans and advances were largely channelled towards distribution (17%), agriculture (16%) and manufacturing (18%), communication (16%), services (15%) and mining (6.4%) sectors. Total loans and advances to individuals amounted to 15%.
Interest Rates
As at end of October 2011, nominal lending rates quoted by banks averaged between 8% and 32% with most of the banks quoting rates of around 20%. This has been perpetrated by the liquidity constraints, high demand for credit, the lack of an active money market, high risks and limited lines of credit. Time deposit rates are also low ranging between 0.15% and 17%.
Financial Sector Developments
The current banking structure comprises 26 operational banking institutions, 16 asset management companies and 157 microfinance institutions under the RBZ's supervision.
As at 31 December 2011, 20 out of the 25 operational banking institutions were in compliance with the prescribed minimum capital requirements, of US$12.5m for commercial banks, US$10.0m for merchant banks and US$10.0m for building societies.
As at 31 December 2011, the weak and troubled banks had 4.14% market share of assets, 2.67% of deposits and 3.84% of loans.
The RBZ also notes that there has been a gradual deterioration in asset quality as indicated by the level of NPLs which is now trending towards the watch list category.
The RBZ called for banking institutions to enhance their credit risk management systems with special emphasis on credit assessment, origination, administration, monitoring and control standards.
Kingdom Financial Holdings Limited has since reported that they have reached an agreement with AfrAsia Bank Limited whereby the latter will inject equity capital amounting to US$ 9.5m. This should ensure that the Bank is now in compliance with the minimum capital requirements. Renaissance Merchant Bank's curatorship period has been further extended to 3 March 2012 to allow for the recapitalisation issues currently underway.
The undercapitalised banks have been given up to 14 February 2012 to finalise their recapitalisation initiatives or mergers and acquisitions. By 29 February 2012, the RBZ will then engage those institutions that would have failed to identify credible partners and conclude the recapitalisation transactions, under the Troubled and Insolvent Bank Policy by no later than 31 March 2012.
Consequently with effect from 1 April 2012, banking institutions not compliant with the minimum capital requirements will not be allowed to conduct banking business. The deadlines thus cancel any dispensations for compliance which had been given to non-compliant institutions.
Banks were urged to release some of the Nostro account balances held with foreign banks so as to improve the local liquidity situation.
The RBZ also emphasised the importance of setting up a Credit Reference Bureau in order to assist the banking sector to manage the growing credit risk by limiting borrower leverage.
The Prudential Liquidity Ratio (PLR) is also set to be increased from the current 25% to 27.5% by 31 March 2012 and 30% by end of May 2012.
Outstanding Statutory Reserve balances at the Reserve Bank amount to US$83.4m and the Ministry of Finance (MoF) announced that Treasury would be issuing instruments to deal with the matter.
National Payment Systems
Electronic transactions for 2011 amounted to US$34.0bn, up 56% from US$22.0bn for 2010. Total RTGS system values totalled US$33.0bn against US$21.0bn for 2010. Cheque payment transactions valued at US$65.0m were cleared in 2011 up from US$42.0m in 2010. US$905.0m ATM transactions were done in 2011, growing by 190% from US$312.0m in 2010. POS transactions registered a 384% increase to US$249.0m compared to US$51.0m in 2010. The value of mobile payment transactions increased by 575% to US$8.1m in 2011 from US$1.2m in 2010 while internet values increased by 132% to US$532.0m from US$230.0m in 2010.
ASSESSMENT
The MoF recently allocated US$20.0m to the RBZ, further there are current negotiations with the Afreximbank for an additional US$80.0m to boost the lender of last resort facility.
We are optimistic that these funds will assist the RBZ to revive interbank lending and ease the transaction problems associated with the liquidity constraint. Growth in confidence in the banking system remains critical to encourage longer term deposits; this will also bode well for growth in the credit terms.
Companies are currently struggling to deal with loan repayments given the high lending rates, thus the setting up of a credit bureau will go a long way in enabling a part of the risk element to be discounted thereby lowering lending rates.
The economy seems set to continue on its growth path, we view the local bourse as a definite entry point to valuable economic sectors and urge investors to take advantage of the current depression to take position in quality stocks.
Our picks in the financials would be Barclays for the long-term given their more cautious lending policy, while CBZH and NMBZ Holdings offer speculative opportunities. Credit retailers such as Edgars, Pelhams, TN Holdings and Truworths are also likely to benefit from the establishment of the credit bureau although we estimate that credit sales growth will most likely stabilise as most individuals and institutions are already overstretched.
We recommend investors stay clear of the highly indebted companies including RioZim given the illiquidity in the economy and unlikely lowering of bank lending rates in the short term. Companies currently undertaking recapitalisation strategies such as CFI Holdings, however make an interesting watch.
Deposits
Deposits grew over the period January to November 2011 by an average of US$ 88.4m on a monthly basis, whilst consolidated deposits (net of interbank deposits) amounted to US$3.2bn as at 30 November 2011 up 41.7% from 30 November 2010.
Year on year growth in deposits has been on the decline from 80% in September 2010 to 40% in September 2011 but rose in November 2011 to 50%. Deposits however continue to be of a short term nature with short term deposits constituting 89.3% of the total deposits in the banking sector as at 30 November 2011.
Lending
Total credit to the private sector increased by 84.3% from US$1.6bn in November 2010 to US$ 2.9bn in November 2011. As a result of the growth in the deposit base and expanded credit, the loan to deposit ratio (excluding offshore lines of credit) increased from 61.9% in December 2010 to over 71.7% by end of December 2011. Including the offshore credit lines the loan to deposit ratio for December 2011 was over 87%. A large proportion of the banking sector credit is also of a short term nature.
Credit to the private sector comprised of loans and advances (83%), mortgages (6.2%), Bankers' Acceptances (BAs) (5.8%), other investments (2.7%) and bills discounted (2.3%). Loans and advances were largely channelled towards distribution (17%), agriculture (16%) and manufacturing (18%), communication (16%), services (15%) and mining (6.4%) sectors. Total loans and advances to individuals amounted to 15%.
Interest Rates
As at end of October 2011, nominal lending rates quoted by banks averaged between 8% and 32% with most of the banks quoting rates of around 20%. This has been perpetrated by the liquidity constraints, high demand for credit, the lack of an active money market, high risks and limited lines of credit. Time deposit rates are also low ranging between 0.15% and 17%.
Financial Sector Developments
The current banking structure comprises 26 operational banking institutions, 16 asset management companies and 157 microfinance institutions under the RBZ's supervision.
As at 31 December 2011, 20 out of the 25 operational banking institutions were in compliance with the prescribed minimum capital requirements, of US$12.5m for commercial banks, US$10.0m for merchant banks and US$10.0m for building societies.
As at 31 December 2011, the weak and troubled banks had 4.14% market share of assets, 2.67% of deposits and 3.84% of loans.
The RBZ also notes that there has been a gradual deterioration in asset quality as indicated by the level of NPLs which is now trending towards the watch list category.
The RBZ called for banking institutions to enhance their credit risk management systems with special emphasis on credit assessment, origination, administration, monitoring and control standards.
Kingdom Financial Holdings Limited has since reported that they have reached an agreement with AfrAsia Bank Limited whereby the latter will inject equity capital amounting to US$ 9.5m. This should ensure that the Bank is now in compliance with the minimum capital requirements. Renaissance Merchant Bank's curatorship period has been further extended to 3 March 2012 to allow for the recapitalisation issues currently underway.
The undercapitalised banks have been given up to 14 February 2012 to finalise their recapitalisation initiatives or mergers and acquisitions. By 29 February 2012, the RBZ will then engage those institutions that would have failed to identify credible partners and conclude the recapitalisation transactions, under the Troubled and Insolvent Bank Policy by no later than 31 March 2012.
Banks were urged to release some of the Nostro account balances held with foreign banks so as to improve the local liquidity situation.
The RBZ also emphasised the importance of setting up a Credit Reference Bureau in order to assist the banking sector to manage the growing credit risk by limiting borrower leverage.
The Prudential Liquidity Ratio (PLR) is also set to be increased from the current 25% to 27.5% by 31 March 2012 and 30% by end of May 2012.
Outstanding Statutory Reserve balances at the Reserve Bank amount to US$83.4m and the Ministry of Finance (MoF) announced that Treasury would be issuing instruments to deal with the matter.
National Payment Systems
Electronic transactions for 2011 amounted to US$34.0bn, up 56% from US$22.0bn for 2010. Total RTGS system values totalled US$33.0bn against US$21.0bn for 2010. Cheque payment transactions valued at US$65.0m were cleared in 2011 up from US$42.0m in 2010. US$905.0m ATM transactions were done in 2011, growing by 190% from US$312.0m in 2010. POS transactions registered a 384% increase to US$249.0m compared to US$51.0m in 2010. The value of mobile payment transactions increased by 575% to US$8.1m in 2011 from US$1.2m in 2010 while internet values increased by 132% to US$532.0m from US$230.0m in 2010.
ASSESSMENT
The MoF recently allocated US$20.0m to the RBZ, further there are current negotiations with the Afreximbank for an additional US$80.0m to boost the lender of last resort facility.
We are optimistic that these funds will assist the RBZ to revive interbank lending and ease the transaction problems associated with the liquidity constraint. Growth in confidence in the banking system remains critical to encourage longer term deposits; this will also bode well for growth in the credit terms.
Companies are currently struggling to deal with loan repayments given the high lending rates, thus the setting up of a credit bureau will go a long way in enabling a part of the risk element to be discounted thereby lowering lending rates.
The economy seems set to continue on its growth path, we view the local bourse as a definite entry point to valuable economic sectors and urge investors to take advantage of the current depression to take position in quality stocks.
Our picks in the financials would be Barclays for the long-term given their more cautious lending policy, while CBZH and NMBZ Holdings offer speculative opportunities. Credit retailers such as Edgars, Pelhams, TN Holdings and Truworths are also likely to benefit from the establishment of the credit bureau although we estimate that credit sales growth will most likely stabilise as most individuals and institutions are already overstretched.
We recommend investors stay clear of the highly indebted companies including RioZim given the illiquidity in the economy and unlikely lowering of bank lending rates in the short term. Companies currently undertaking recapitalisation strategies such as CFI Holdings, however make an interesting watch.
Source - Imara Stockbrokers
