'Ailing banks should downgrade,' says RBZ boss

'Ailing banks should downgrade,' says RBZ boss
Published: 24 July 2014
Struggling banks should consider merging or downgrading to micro-finance institutions which have less capital requirements and operating costs instead of posing a threat to the entire financial services sector, fiscal and monetary authorities have said.

Both Finance and Economic Development Minister Patrick Chinamasa and Reserve Bank of Zimbabwe Governor Dr John Mangudya say that ailing banks should either invite new investors to meet capital thresholds, merge or downgrade to microfinance institutions.

The fiscal and monetary authorities said the struggling banks are, however not big enough to affect the entire financial services sector.

Capital requirements are currently at $25 million - $100 million by 2020 for commercial banks, $25 million for merchant banks-$100 million by 2020, $20 million for building societies - $80 million by 2020, $15 million for discount and finance houses, $60 million by 2020 and $5 million for micro-finance banks- $10 million by 2020.

Minister Chinamasa told the portfolio committee on Budget, Finance and Economic Development on Monday that ailing banks which are failing to meet the required minimum threshold should downgrade.

"We can't all be the same size. If you are in the 3rd league you must not play in the premier league.

"If you see that you have found yourself in the premier league and you don't qualify (to play in the premier league) go to the league you qualify fore before we disqualify you," said Minister Chinamasa.

"Go to the level where you belong. We have created micro-finance houses and I am aware we have 167 such firms and they allow deposits so you lose nothing by becoming a micro-finance house and not a big bank which is requiring $25 million for capitalisation," he said.

He said in most of the cases where the banks fail to service the banking public they end up using depositors' funds. In such situations, the Minister said, Government will act to protect depositors.

He said Zimbabwe needs indigenous banks but they must play ball.

"I am very clear we need indigenous banks in this country. No country has ever succeeded without a strong indigenous financial services sector," he said.

There are 146 micro-finance institutions in Zimbabwe which Minister Chinamasa said are operating profitably.

Appearing before the same committee last month Dr Mangudya said about five banks are having problems.

He said 95 percent of the banks are 'good'.

"We have noticed that some banks which do not have adequate capital are looking for investors. Our hope is that they will be able to do so," said Dr Mangudya.

"Those who cannot find investors we continue to engage them and encourage them to consolidate," he said.

Government is working at new measures that will help safeguard the financial services sector.

Some of the problems that have been identified by fiscal and monetary authorities include corporate governance deficiency, non performing loans and a failure to attract lines of credit.

The RBZ governor said the central bank is working quarantining the NPLs.

"We are looking at either creating a Special Purpose Vehicle or at attracting a global facility to house the NPLs. We need to look at the assets pledged to sweat them," said Dr Mangudya.
- Conrad Mwanawashe I The Herald
Tags: RBZ, Banks,


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