Business / Economy
Tendai Biti to inject more money into economy
11 Feb 2012 at 00:27hrs | Views
FINANCE Minister Tendai Biti will next week announce a raft of measures aimed at easing the current liquidity challenges in the economy.
Minister Biti said that the liquidity challenges should only be seen as temporary.
"We have a temporary liquidity crisis in the economy and not a banking crisis. However, to ensure that we address the situation, I will in the course of next week announce measures to deal with the situation," he said.
The minister will announce measures to deal with statutory reserves that will see banks that are owed US$82 million by the central bank recovering that money.
"As Government, we have agreed to monetise banks through the issuance of discounted National Certificate Deposit, which will have prescribed asset status and will be accompanied by the usual benefits, tax exemption and qualification as collateral for the lender of last resort facility," he said.
"Discussions are at an advanced stage to restore the lender of last resort function at the Reserve Bank."
To this end, the minister said he had spent the greater part of yesterday in discussions with Afreximbank president Dr Jean-Lois Ekra, his legal advisor Mr Gerald Chihota and the bank's local representative Mr Gift Chimwaka on the establishment of the facility.
The minister is also going to unveil a facility that will be made available to banks that will allow for a debt swap through tradable and convertible instruments.
The Herald is reliably informed that the ministry has since concluded a facility worth over US$80 million with the Afreximbank bank to establish the Reserve Bank of Zimbabwe's banker of last resort status that will enable banks to access the statutory reserve fund.
Under this initiative, banks that were sitting on under performing loan accounts will be able to convert these loans to cash while Afreximbank will assume the loan book.
Companies that were struggling to pay their loans will now have a longer period to pay back at a much lower interest rate.
Some of the indigenous banks were badly affected by companies that were failing to pay back their loans since the introduction of multi-currency in the economy.
Banks such as CBZ were at the forefront of bankrolling companies, farmers and other individuals to keep the economy going but were now suffering from underperforming loans.
Other measures to be announced by the minister revolve around banks' capitalisation, recapitalisation and mergers.
"We hope to emerge with fewer banks that can play a meaningful intermediary role in the economy. We are also pursuing market-related formulas that will allow not only our local banks but also industry and the mining sector to keep their money in the local banking system.
"We will put in place measures to ensure that Government and parastatals' business is fairly distributed amongst all banks to assure sustenance and buoyancy," he said
Minister Biti will propose amendments to the Banking Act that will increase oversight and mandatory stress tests to minimise risk and to promote sound corporate governance in the banking sector.
"We will also be pursuing measures to ensure that shareholders in banks cannot play a management role or policy role in those banking institutions. In fact the corporate veil should not be lifted.
"There should be a concrete demarcation between shareholders, particularly founding shareholders and the bank they own," he said.
As Government, he said they were looking at consolidating their banking assets that include ZABG, POSB, Agribank, ZB Holdings and shares in CBZ.
"These assets must be leveraged to create value through the injection of outside capital and mergers and in any event banking is not the core business of Government," he said.
Additional measures to ease the liquidity crunch include the injection of US$110 million that was received from the liquidation of the Special Drawing Rights availed by the International Monetary Fund.
Of the US$110 million, US$40 million will go towards infrastructure development, US$30 million will be availed as lines of credit, US$20 million will go towards restoration of the lender of last resort facility and the remaining US$20 million to agriculture.
"We also want to encourage our people and banks to revert to a plastic economy because there is too much use of cash when in fact people should be using debit or credit cards and other non-cash instruments.
"We are working on measures and incentives that will see us moving to a cashless society," he said.
The minister's announcement comes amid revelations that foreign-owned banks operating in Zimbabwe are sitting on close to US$500 million of local depositors' funds being kept in the United Kingdom and South Africa while the Zimbabwean financial sector is reeling from an acute liquidity crunch.
Well-placed sources confirmed that these traditional banks headquartered in London and Johannesburg were reluctant to lend any money to Zimbabwean individuals, organisations and companies, which has worsened the liquidity situation in the country.
The foreign-owned banks' managers were under strict instructions from their head offices not to lend any money without their approval even though the money was being generated in Zimbabwe.
Huge deposits from mining companies and individuals were not being circulated in the banking sector, resulting in a serious shortage of money.
The liquidity crunch in the financial sector has seen some clients failing to access their money as most of the locally owned banks did not have the money to pay depositors with the exception of about six indigenous banks.
Foreign-owned commercial banks not affected by the liquidity crunch are Standard Chartered, Barclays, MBCA, CABS and Stanbic but these are reluctant to assist the struggling banks by offering them facilities.
Minister Biti said that the liquidity challenges should only be seen as temporary.
"We have a temporary liquidity crisis in the economy and not a banking crisis. However, to ensure that we address the situation, I will in the course of next week announce measures to deal with the situation," he said.
The minister will announce measures to deal with statutory reserves that will see banks that are owed US$82 million by the central bank recovering that money.
"As Government, we have agreed to monetise banks through the issuance of discounted National Certificate Deposit, which will have prescribed asset status and will be accompanied by the usual benefits, tax exemption and qualification as collateral for the lender of last resort facility," he said.
"Discussions are at an advanced stage to restore the lender of last resort function at the Reserve Bank."
To this end, the minister said he had spent the greater part of yesterday in discussions with Afreximbank president Dr Jean-Lois Ekra, his legal advisor Mr Gerald Chihota and the bank's local representative Mr Gift Chimwaka on the establishment of the facility.
The minister is also going to unveil a facility that will be made available to banks that will allow for a debt swap through tradable and convertible instruments.
The Herald is reliably informed that the ministry has since concluded a facility worth over US$80 million with the Afreximbank bank to establish the Reserve Bank of Zimbabwe's banker of last resort status that will enable banks to access the statutory reserve fund.
Under this initiative, banks that were sitting on under performing loan accounts will be able to convert these loans to cash while Afreximbank will assume the loan book.
Companies that were struggling to pay their loans will now have a longer period to pay back at a much lower interest rate.
Some of the indigenous banks were badly affected by companies that were failing to pay back their loans since the introduction of multi-currency in the economy.
Banks such as CBZ were at the forefront of bankrolling companies, farmers and other individuals to keep the economy going but were now suffering from underperforming loans.
Other measures to be announced by the minister revolve around banks' capitalisation, recapitalisation and mergers.
"We hope to emerge with fewer banks that can play a meaningful intermediary role in the economy. We are also pursuing market-related formulas that will allow not only our local banks but also industry and the mining sector to keep their money in the local banking system.
"We will put in place measures to ensure that Government and parastatals' business is fairly distributed amongst all banks to assure sustenance and buoyancy," he said
Minister Biti will propose amendments to the Banking Act that will increase oversight and mandatory stress tests to minimise risk and to promote sound corporate governance in the banking sector.
"We will also be pursuing measures to ensure that shareholders in banks cannot play a management role or policy role in those banking institutions. In fact the corporate veil should not be lifted.
"There should be a concrete demarcation between shareholders, particularly founding shareholders and the bank they own," he said.
As Government, he said they were looking at consolidating their banking assets that include ZABG, POSB, Agribank, ZB Holdings and shares in CBZ.
"These assets must be leveraged to create value through the injection of outside capital and mergers and in any event banking is not the core business of Government," he said.
Additional measures to ease the liquidity crunch include the injection of US$110 million that was received from the liquidation of the Special Drawing Rights availed by the International Monetary Fund.
Of the US$110 million, US$40 million will go towards infrastructure development, US$30 million will be availed as lines of credit, US$20 million will go towards restoration of the lender of last resort facility and the remaining US$20 million to agriculture.
"We also want to encourage our people and banks to revert to a plastic economy because there is too much use of cash when in fact people should be using debit or credit cards and other non-cash instruments.
"We are working on measures and incentives that will see us moving to a cashless society," he said.
The minister's announcement comes amid revelations that foreign-owned banks operating in Zimbabwe are sitting on close to US$500 million of local depositors' funds being kept in the United Kingdom and South Africa while the Zimbabwean financial sector is reeling from an acute liquidity crunch.
Well-placed sources confirmed that these traditional banks headquartered in London and Johannesburg were reluctant to lend any money to Zimbabwean individuals, organisations and companies, which has worsened the liquidity situation in the country.
The foreign-owned banks' managers were under strict instructions from their head offices not to lend any money without their approval even though the money was being generated in Zimbabwe.
Huge deposits from mining companies and individuals were not being circulated in the banking sector, resulting in a serious shortage of money.
The liquidity crunch in the financial sector has seen some clients failing to access their money as most of the locally owned banks did not have the money to pay depositors with the exception of about six indigenous banks.
Foreign-owned commercial banks not affected by the liquidity crunch are Standard Chartered, Barclays, MBCA, CABS and Stanbic but these are reluctant to assist the struggling banks by offering them facilities.
Source - TH
