(HERALD) Bring back funds in offshore accounts, local banks told

Bring back funds in offshore accounts, local banks told
Friday, 17 February 2012 00:00
Hebert Zharare and Victoria Ruzvidzo

TREASURY has ordered all banks to repatriate 75 percent of funds held in offshore accounts with effect from March 1 as part of measures to curb liquidity challenges.
Foreign banks operating in Zimbabwe are believed to be sitting on over US$500 million of local depositors' money kept in the United Kingdom and South Africa among other countries.

Finance Minister Tendai Biti yesterday said the move follows consultations with the Bankers Association of Zimbabwe. This came as the central bank also moved in yesterday to suspend cash withdrawal limits from next month following the improvement in the liquidity situation and the need to encourage savings.

In his monetary policy statement on January 31, Reserve Bank Governor Dr Gideon Gono put a US$10 000 ceiling on cash withdrawals while transactions above the limit required notice periods of up to five days depending on the amount needed.

Minister Biti said after consultations with the Bankers Association of Zimbabwe, Government and RBZ concluded that there was need for the repatriation of all other Nostro Account balances in excess of banks' needs, pending international payment obligations and for the purposes of taking positions in the international market.

Said Minister Biti "With effect from March 1, 2012, banks will, therefore, be required to maintain in their Nostro Accounts a maximum of 25 percent of their balances offshore.

"The maximum rises to 30 percent from June 1, 2012," he said.

Banks would still use their Nostro Account balances to meet some obligations such as lines of credit, trade and project finance support.

Minister Biti and Dr Gono reiterated the need for businesses and the general public to broaden the use of plastic money and other electronic means of payment.

"Government is in consultation with the Reserve Bank and the Bankers Association, considering introduction of measures and fiscal incentives deemed necessary to promote broader use of plastic money," he said.

Efforts to restore the central bank's lender of last resort status will receive a major boost next week with the injection of US$23 million from Treasury.

Minister Biti said his Ministry was working with local and international financial institutions to finalise the mobilisation of an additional US$73 million.

Dr Gono said the central bank will need at least US$150 million to effectively play its role in the financial market.

"For the smooth operation of the financial services sector, there is need for the lender of last resort function to be adequately funded. Based on the size of the country's GDP (Gross Domestic Product), it is estimated that an amount of US$150 million is required for the smooth functioning of the lender of last resort," he said.

RBZ will soon co-ordinate the establishment of a Special Purpose Vehicle where financial institutions and other investors will contribute towards the LoLR Fund.

This is expected to improve low deposit rates prevailing in the market.
Banks were implored to take a cue from the apex bank's overnight accommodation rate in terms of lending rates charged on loans.

On statutory reserves owed by the Reserve Bank to local banks, Minister Biti said Treasury will issue Discountable and Tradable Instruments to willing participant banks.

The banks are collectively owed up to US$83.583 million.

He said the issuance of discountable paper instruments against the Reserve Bank Statutory Reserve liabilities was against the background of the country's limited fiscal space.

The maturity of the instruments will range from two to four years with features such as Prescribed asset status; Liquid asset status; Half-yearly coupon; Tax exemption; Tradable and Lender of Last Resort security status.

Institutions not willing to participate in the above scheme will have the option of being issued with 15-year bonds at 3 percent per annum.

Treasury will immediately establish a Sinking Fund for servicing of interest payments and maturities.

Furthermore, instruments will be introduced to fund large infrastructure projects which Government could presently not finance from the current levels of fiscal revenues.

"Hence, notwithstanding the prevailing challenges in the financial system, Treasury will be issuing Infrastructure Development Bonds to complement Budget resources set aside for the financing of the rehabilitation of infrastructure.

"Given the need to abide by our cash budgeting principles, the Infrastructure Development Bank of Zimbabwe will be mandated to issue Infrastructure Development Bonds to the tune of US$50 million."

"Once an agreement has been reached, I will announce the operational framework for the disbursement of these funds."

Furthermore, to strengthen and deepen the financial sector, Treasury, the Reserve Bank, the Insurance and Pensions Commission and the Securities Commission will be reviewing the existing legislation governing the various financial sub-sectors.

This review will cover the following legislation:- Banking Act, Securities Act, Microfinance Bill, Insurance Act, and Pension and Provident Funds Act.

The review of the Banking Act will focus on capital adequacy of banks and governance deficiencies, which have characterised the banking sector.

Notable examples include the need to ensure that shareholders have no role to play in the management of financial institutions.

This will limit the prevalence of incidences of insider loans, abuse of depositors' funds and conflicts of interest.

The review on capital adequacy requirements should result in the streamlining of the number of banks operating in the economy through mergers and the injection of new capital by investors.

Twenty of the 25 operational banking institutions complied with the capital requirements, with the remainder still under-capitalised in spite of moving deadlines for compliance several times.

"Given the importance of having a strong and secure banking sector that is immune to systemic risk, I have mandated the Reserve Bank to develop a framework for mergers between the banking institutions. Modalities of this Framework will be announced in due course," Minister Biti said

Yesterday, Dr Gono confirmed that the central bank was in receipt of recapitalisation proposals by undercapitalised banks as he stressed that no undercapitalised bank will be allowed to operate after March 31.

"It is the Ministry of Finance and the Reserve Bank's expectation to have adequately capitalised banks that are able to play a meaningful financial role in the economy," said Dr Gono.