'Govt must capitalise RBZ,' says Bankers

Published: 04 November 2013

Government must prioritise the recapitalisation of the Reserve Bank of Zimbabwe (RBZ) in the forthcoming 2014 National Budget to help ease liquidity challenges in the country, the Bankers Association of Zimbabwe (BAZ) said.

In its contribution to Parliament's budget consultations last week, the bankers' representative body said "it is imperative that the central bank be adequately capitalised, as part of an integrated plan to restore confidence in the banking sector."

"Adequate capitalisation of the RBZ will enable it to perform its lender of last resort function, as well as activation of the interbank market," said BAZ.

The RBZ lost its lender of last resort status in 2009 when the country adopted a multi-currency system, dominated by the use of the United States dollar.

Economic experts contend that ample capitalisation of the RBZ is critical for the performance of lender of last resort function.

The lender of last resort function is an integral part of money and capital markets development.

The central bank requires at least $150 million to perform its core function and participate in financial intermediation by determining policy rates to influence market interest rates.

BAZ also noted that the government must issue both short term (Treasury Bills) instruments and long-term bonds for both money and capital markets development.

The association of financial institutions in the country said it was critical Zimbabwe to restore of RBZ banker to government function.

"For orderly functioning of money and capital markets, and development of the same, it is imperative that the function of banker to government be restored to the Central Bank.

This will also create an even playing field for other commercial banks," added BAZ.

The function of banker to government was transferred to commercial banks in 2009, upon adoption of multi-currency.

BAZ noted that the strengthening of the central bank's financial and monetary stability function will be an important step in addressing banking sector vulnerabilities.

"The RBZ requires capacity building and strengthening to allow the central bank to undertake on- sight supervision and audit of the banks to ascertain capital levels, risk management frameworks, stress testing and levels of NPLs, among other things," said BAZ.

BAZ contends that the retention of the multiple currency system will help restore confidence in the economy.

The Finance ministry has already highlighted that the multi-currency will be retained and that the economy has to fulfil certain pre-conditions before re-introduction of the local currency.
- dailynews