LOCAL banks have raised concerns over capitalisation demands by the Reserve Bank of Zimbabwe (RBZ) compelling the financial institutions and deposit-taking micro-finance firms to meet their targets on a cash-to-near-cash basis.
According to international benchmarks, capital requirements are regulatory standards for banks that determine how much liquid capital (easily sold assets) they must keep on hand.
Expressed as a ratio, the capital requirements are based on the weighted risk of the banks’ different assets. This is the criteria that the RBZ uses to decrease the risk of default or bank failure while ensuring that depositors have access to funds on a needs basis.
Some local banks and some small deposit-taking financial institutions have been battling to meet the stipulated minimum capital requirements due to several challenges.
Central bank regulations demand that large commercial and foreign banks (tier 1) should have a minimum capital of US$30 million, while merchant banks, building societies, development banks, finance and discount houses (tier 2) should have a minimum capital of US$20 million.
Smaller deposit-taking microfinance banks (tier 3) are required to have at least US$5 million capital.
The Zimbabwe Independent understands that the minimum capital requirements are now an industry-wide concern. Some financial institutions are petitioning the RBZ to consider other financing models to meet the capitalisation targets.
Analysts pointed out that there are various non-cash models that can still be used in capitalisation although some financial institutions are battling to use those systems.
Several banks that spoke to the Independent on condition of anonymity said the cash-to-near-cash demands by the RBZ were not sustainable. They suggested that monetary authorities should consider capitalisation using assets like properties among other financial instruments.
A well placed banker said there was a need for the RBZ to take into account the current economic situation, which is volatile for a cash capitalisation model.
“We believe that until the economy has stabilised, it’s advisable for the RBZ to be considerate in its demands.
“Also any intention to increase the current minimum capital requirements will be ill advised. For instance, the demand on using monetary assets on capitalisation needs to be looked at again,” said the banker.
There are also fears in the market that a number of commercial and foreign banks have been struggling to meet deadlines due to various challenges but some have remained resilient in the face of the headwinds.
In an interview, Bankers Association of Zimbabwe (BAZ) president Ralph Watungwa said the majority of banks met the capitalisation targets and any engagement happening with the central bank was on an individual basis.
“I am not aware of discussions happening on the banking sector as a whole because the majority of banks have managed to achieve the targets. But there are some individual banks that are yet to meet the requirements,” he said.
The strategies pursued by banking institutions to comply with the new minimum capital requirements towards the end of 2021 were based on organic growth and capital injection by the shareholders.
Contacted for comment, RBZ governor John Mangudya promised to check with his bank supervision unit before issuing a response.
“I will check with our team in the bank supervision unit and revert to you,” Mangudya said.
He had not responded by the time of going to print.
According to the 2021 RBZ mid-term monetary policy review , the banking sector remained adequately capitalised, with an aggregate core capital of ZW$57,54 billion (US$533 million) as at June 30, 2021, an increase of 8,09% from ZW$53,18 billion (US$492 million) as at December 31, 2020.
The banking sector average capital adequacy and tier one ratios of 35,32% and 25,05% were above the regulatory minimum of 12% and 8%, respectively.
In line with the Monetary Policy Statement of August 2020, banking institutions submitted updated capital plans to the RBZ by June 30, 2021, which were reviewed for credibility.
RBZ established that banking institutions were making significant progress towards meeting the new minimum capital requirements which were effective December 31, 2021.
Zimbabwe currently has 13 commercial banks, five building societies, one savings bank, eight deposit-taking micro-finance institutions, two development financial institutions and 178 credit-only micro-finance institutions.