ZIMBABWE’S banking sector is skating on thin ice due to a illiquidity crunch that has drastically reduced the financial institutions’ capacity to lend following the reintroduction of a local currency, a report has revealed.
According to the report by brokerage research firm IH securities titled, The Zimbabwe Banking sector: Navigating a challenging monetary space, released on Friday, the currency reforms created a mismatch between foreign currency-denominated assets and liabilities on some banks’ balance sheets.
The distortions have stifled the financial institutions’ lending capacity, the report says.
“The floating of the Zimbabwe dollar resulted in the translation of foreign currency denominated assets at the interbank rate,” reads part of the report.
“In cases where the banks have net liabilities denominated in foreign currency, [this] resulted in a larger increase in liabilities than assets.
“This will result in the decline in the capital of the bank ensuing a reduction in the lending capacity of the bank.
“As shown in the proforma 31 December 2018 balance sheets, Agribank and Ecobank would have been insolvent, further increasing liquidity risk within the banking sector.”
In June, the government made the real time gross settlement (RTGS) and bond notes the country’s sole legal tender, ending a decade of dollarisation.
The move was seen as another step towards the relaunching of the Zimbabwe dollar.
IH said in order for financial institutions to resume lending and improve funded income under the new dispensation, the banking sector would need to increase capital requirements.
It warned that the minimum capital requirement for commercial banks, which was set at US$100 million to be achieved by 2020, had effectively been reduced to US$10 million after the adoption of the mono currency regime.
“The implication is that the real value of capital is now US$10 million, which in our view, will cause most banks to re-assess risk and their lending capacity and further strain liquidity,” it added.
“Another point to note is that the assumption of the US$1,2 billion of legacy debt at a 1:1 by the central bank will result in the physical mopping-up of $1,2 billion from the banking sector, also effectively straining liquidity.”
IH said the indication that the Reserve Bank of Zimbabwe (RBZ) had no plans to increase the minimum capital requirements from $100 million after the promulgation of the local currency at a time when only four banks had reached core capital over and above the 2020 targeted prescribed minimum capital requirements of $100 million, spelt disaster.
The firm forecasts softening profitability and return on equity (ROEs).
It said a number of commercial banks might not be able to meet the $100 million target using retained earnings and would be forced to turn to shareholders for fundraising.
“According to the Reserve Bank’s supervision annual report for 2018, ZB and Metbank were the lowest capitalised banks at $69.86 million and $65.88 million core capital, respectively,” the report added.
“With retained earnings possibly being inadequate in terms of increasing the core capital to $100 million, we anticipate that some banks might need to turn to their shareholders for additional capital support through corporate actions such as rights offers and or consolidation for the banks that have common majority shareholders.”
IH said the $100 million minimum capital requirement for banks compared well with that of other countries in the region.
For instance, Angola requires banks to have a minimum capital of US$21,75 million.
Meanwhile, IH securities said the fact that funding for Zimbabwe’s banking sector continued to be dominated by transitory demand deposits contributing 64,94% to the total deposits meant there was a large liquidity mismatch between long-term assets created through the use of funded income.
Of the total $10,32 billion deposits registered within the banking sector as at December 31, 2018, the nostro foreign currency balance contributed 6,53%, translating to $673,81 million.
IH said for the interbank foreign currency market rates to converge with those on the parallel market, the RBZ must not play a significant role, hence the need for reforms.
“Reforms include the liberalisation of the market by allowing foreign currency generating companies to directly offload the foreign currency that is currently being retained by the central bank onto the market to increase liquidity of the market,” the firm said.
“Additionally, in line with the desire for the convergence of the parallel and formal rates, subsidies for specific goods or sectors (e.g. fuel or medicine) should be channelled through the budget, not through administered exchange rate,” IH said.
“We believe that under the right conditions, a functioning interbank market could provide a strong source of non-funded income for the banking sector — it is our view that the leading beneficiaries would be institutions that bank exporting clients creating a natural source of foreign currency liquidity — this would mostly be the international banks who are generally unlisted on the Zimbabwe Stock Exchange with the exception of First Capital Bank (formerly Barclays Bank).”
Zimbabwe has been experiencing a liquidity crunch for a number of years due to the poor performance of the economy.
Info News
Drug Rehab Treatment Centers: How to Choose the Right Program
Choosing a drug rehab treatment center is an important decision for individuals and families facing substance use challenges. The right program can provide structure, support, therapy, and recovery planning. However, not every treatment center is the same, so it is important to understand what to compare.
rnrn
Drug rehab programs may include inpatient treatment, residential treatment, partial hospitalization, intensive outpatient care, standard outpatient care, and aftercare support. The best level of care depends on the person’s substance use history, health needs, home environment, mental health concerns, and risk of relapse.
rnrn
Inpatient or residential treatment usually provides 24-hour support in a structured setting. This may be helpful for people who need a stable environment away from triggers. Outpatient treatment allows people to live at home while attending scheduled therapy sessions. This may work better for people with strong support systems and less severe needs.
rnrn
Medical detox may be needed for some substances. Detox should be supervised by qualified medical professionals because withdrawal can be uncomfortable and sometimes dangerous. Detox alone is usually not a complete treatment plan; it is often the first step before therapy and long-term recovery work.
rnrn
A quality treatment center should offer individualized care. Addiction recovery is not one-size-fits-all. Treatment may include individual counseling, group therapy, family therapy, relapse prevention planning, medication-assisted treatment when appropriate, and mental health support.
rnrn
Licensing and accreditation matter. Families should ask whether the facility is licensed in its state and whether staff members are qualified. It is also important to ask about treatment methods, patient safety, staff-to-client ratio, and emergency procedures.
rnrn
Cost is another factor. Some rehab centers accept insurance, while others require private payment. Before admission, ask for a clear explanation of costs, insurance coverage, out-of-pocket expenses, and refund policies.
rnrn
Location can also matter. Some people benefit from being close to family. Others may need distance from unhealthy environments. The right decision depends on the person’s support system and recovery goals.
rnrn
Aftercare is one of the most important parts of treatment. Recovery does not end when a program is completed. A strong discharge plan may include outpatient therapy, support groups, sober living, relapse prevention strategies, and follow-up appointments.
rnrn
This article is for general information only and is not medical advice. Anyone facing substance use concerns should speak with a qualified healthcare or addiction treatment professional.
rn
Motorcycle Accident Lawyer: Legal Help After A Serious Bike Crash
Motorcycle accidents often cause serious injuries because riders have less protection than people in cars. A motorcycle accident lawyer helps injured riders pursue compensation after a crash.
rnrn
Common injuries include broken bones, road rash, spinal injuries, brain injuries, internal injuries, and permanent disability.
rnrn
Insurance companies may unfairly blame motorcyclists by assuming they were speeding or reckless. A lawyer can help fight this bias with evidence.
rnrn
Important evidence may include police reports, helmet damage, photos, witness statements, traffic camera footage, and accident reconstruction.
rnrn
Compensation may include medical bills, lost income, motorcycle repairs, pain and suffering, and future treatment.
rnrn
If a driver failed to yield, changed lanes unsafely, texted while driving, or drove impaired, they may be responsible.
rnrn
Motorcycle crash victims should get medical care quickly and avoid giving recorded statements without legal advice.
rn
