Revive the inter-bank market

HARARE - Finance Minister Tendai Biti biggest bloat on his tenure as the national treasurer is the placement of banks on curatorship and persistent challenges that stalk the banking sector.

Try as we might to give him and his colleagues in the inclusive government the plaudits, the fact is that the tremors felt in the financial services sector especially banking, are indicative of an environment far from being stable.

Stability of the economy is measured by stability in banks, period!

Reserve Bank governor Gideon Gono was savagely attacked for merging and/or withdrawing licences of some commercial banks as well the collapse of them.

He has taken it on the chin but Biti, of course he might grudgingly refute this, was part of the people who made shrill calls for both Gono and Zanu PF administration to go.

He is walking a familiar road that Gono once walked.

This line is so important to underline the challenges and burdens that come with a position in government.
It is not about politics but governance.

For more than a year, bankers have been frustrated in their bid to have government and Biti issue Negotiable Certificates of Deposits (NCDs) to allow redistribution of funds in the economy and pave way for money circulation.

NCDs are a financial savings vehicle offered by a financial institution like a bank that usually requires a high minimum deposit of at least $100 000 and are paid only on maturity.

In our situation, these, if Cabinet and Biti had okayed them banks would have been able to trade on the inter-bank market as well as restoring the RBZ’s with its Lender of Last Resort (LOLR) status.

As it is, banks are operating as silos and are not trading on the inter-bank market.

In the absence of an inter-bank market and LOLR function by the RBZ, many banks are struggling to cope with the high demand for money.

This final quarter of the year is the driest period and places serious liquid pressures on the banks.

Demand for money is higher because this is the time to finance the agricultural season, when companies pay bonuses, government reward civil servants with bonuses and most companies re-stock for the festive season.

Between June and August there are exports driven by the agricultural commodities — tobacco and cotton, which this year contributed approximately a combined $700 million in earnings.

This is where Biti and his colleagues in the inclusive government come in for heavy criticism for failing to put measures that lift off the financial stress that the already struggling banks are burdened with.

If Biti and his colleagues in Cabinet had supported the bankers’ request for use of NCDs, we should be having an inter-bank market.

The inter-bank market would act as a pool where banks trade against each other.

Maybe banks that choked under serious liquidity problems would have been saved.

Critically, the RBZ would have been in a position to support the interbank market using its LOLR function but of course, it has not been capitalised to support that.

And there is no economic argument that has been used to explain the absence of that role.

As it is, in the absence of an inter-bank market and LOLR, some banks have formed like-minded groups to have an informal inter-bank.

But this is not sustainable especially in the period between now and December unless there is a change of policy by government.

We have no exports, consequently dashing any hopes of generating money until the tobacco and cotton seasons commence next year.

Yet we have diamond money which should be channelled to the economy to create liquidity.

There could be serious ramifications ahead if this seemingly lack of appreciation by government and by extension, Biti, continues.

Some in government think huge bank balances translate into liquidity.

A careful look at statements accompanying half year end results of banks, might give an insight into the challenges faced by banks — most of them have frozen loans.

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