Stability stress tests for Zimbabwe banks

Stability stress tests for Zimbabwe banks
Published: 12 February 2018
The Reserve Bank of Zimbabwe (RBZ) will start conducting comprehensive financial stability stress tests on the banking sector beginning September 2018 as it seeks to bring stability to the troubled sector.

Central bank governor John Mangudya said the tests were part of measures aimed at assessing impact and resilience of the financial sector's portfolios, capital and liquidity.

"As part of measures to promote financial sector stability, the Reserve Bank in collaboration with the World Bank and other financial sector regulators, shall assess the effectiveness of existing frameworks to respond to crisis situations in line with international best practices, during the first quarter of 2018," Mangudya said in his Monetary Policy Statement.

The stress tests are aimed at building strong and resilient banks after the collapse of several banks in the past few years.

Local banks currently stress test themselves using their own assumptions and scenarios.

Popular in the developed world with countries like New Zealand, Canada and the United Kingdom doing them, stress tests are meant to find weak spots in the banking system at an early stage, and to guide preventive actions as part of efforts to stabilise the financial sector.

Presently, banks across the European Union are preparing the toughest possible stress test to prepare for Britain leaving the bloc, a move they fear could spark a severe recession and deliver an 8,3 percent hit to its economy.

Since 2008 banks around the world have tested their ability to respond to global "worst-case scenario" conditions that include variables like financial crashes, changes of government and the tectonic shifts in global power associated with China's rise.

Through its prudential supervision of banking institutions as enshrined in the RBZ Act (chapter 22:15), the RBZ will come up with a model with standardised risk-modelling techniques, assumptions and scenarios to better identify the risks that trigger financial instability.

An affected bank has the potential to threaten the stability of the financial sector as a whole.

The country has experienced over 20 cases of bank failures since 2004 due to serious challenges that ranged from poor corporate governance practices, deep rooted risk management deficiencies and chronic liquidity problems.

There has been growing concern over the increasing number of banks that have failed considering the key role that the financial sector plays in the development of the economy.

Presently, the banking sector is constituted by 14 commercial banks, one merchant bank, three building societies and one savings bank from about 40 players in 2002.


- dailynews
Tags: Banks,

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