RBZ hints on reviewing banks' capital requirements

HARARE - Reserve Bank of Zimbabwe (RBZ) governor John Mangudya (pictured) has hinted that the central bank might review the $100 million minimum capital requirements for banks.

The central bank chief on Monday told Parliament that the strength of Zimbabwe’s financial institutions “should be judged on the quality of their asset books”.

“I don’t believe that the one-size-fits-all model will work with our banks.

“We should be able to benchmark minimum capital requirements depending on the size of the bank’s balance sheet,” he said.

“What we should be emphasising on is the quality of asset books for banks, because it does not make sense for a bank to have $100 million minimum capital… yet it has high non-performing loans,” said Mangudya.

This comes as the central bank early this year extended the banks’ capital requirements to June 2020 in an effort to allow local and small banks to comply.

Nonetheless, many of Zimbabwe’s small indigenous banks are struggling to raise the money and have resorted to seeking foreign capital.

However, Mangudya noted that despite about five banks being undercapitalised, the country’s banking sector remains safe and sound.

“When you have four or five banks that are struggling and carry about five percent of the total deposits, then we can conclude that the sector is strong because we have other banks that carry 95 percent of the total deposits that are doing well,” he said.

According to market reports, of the 18 banks operating in Zimbabwe, five are foreign-owned.

Four banks hold 60 percent of the approximately $4,7 billion deposits in the system.

But, with Zimbabwe’s economy faltering, some banks have closed, weighed down by indiscriminate lending and failure to raise new capital to cover loan losses.

Mangudya, a former CBZ Holdings chief executive, said the central bank was working on plans to minimise the effect of non-performing loans (NPLs), which are currently around 16 percent of total deposits.

“If we get someone with funds, (we) house those NPLs and they will be managed from there to remove that contagion effect from the banks,” he said, without elaborating. Mangudya said another option would be the issuance of a special bond to attract foreign funding to deal with the NPLs, to help improve the liquidity situation in the country.

“We would look for someone or some institution with funds, which will then close the NPLs and those funds will be quarantined in a pot where it is supposed to be cash generative and we will also provide liquidity,” he said.

He added that plans were also underway to establish a national credit reference bureau so that banks had borrowers’ profiles.

Comments (5)

Well said Dr Mangudya. Does it make sense that in this non performing economy, with a GDP of around US10billion, requires bank capital of US$100million, when South Africa, a US$300billion economy requires US$25million bank capitalisation. Besides, how does one expect a bank like Trust, which is just over 20 years old, to be able to raise capital to the same level as the 400+ year old Barclays, with its massive international network??? You are very right, we cant have a one size fits all!!!! We look forward to the developments on this issue.

SHIBHOBHO - 2 July 2014

Why is the Central bank not holding the said Capital on behalf of the Banks and adequately Capitalized? It sounds ridiculous as a Commercial Bank must have 100 Million while the Central Bank has not even that amount so capitalize RBZ first by at least 1 Billion Dollars in Gold Buillon to back the Banking System.

Emperor - 2 July 2014

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water.. - 3 July 2014

FINALLY a guy who knows a bit about banking not that 2 timing tea boy and his sidekick/advisor turned enemy/MP

Harare - 3 July 2014

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