via Whither RBZ after GG? | The Herald December 5, 2013 by Takunda Mugaga
On Saturday November 30, 2013 the tenure of Dr Gideon Gono as Reserve Bank of Zimbabwe Governor came to an end.
He came to power as Zimbabwe’s economic challenges were manifesting and he was tasked with the unenviable task of managing economic malaise as the arteries of the economy were clogging as inflationary growth became incomprehensible.
He took the reins in 2003 at a time when some banks had begun to dabble in clandestine dealings due to deteriorating balance sheets caused by inflationary pressures.
Dr Gono became a banking tsar instilling some modicum of sanity, but the odds were still stacked against the sector leaving little room for the development of an efficient national payment system, with inflation hovering around 41 percent at the time he assumed office.
However, things soon spun out of control as the country hurtled into hyperinflation and the situation only changed after the introduction of the multi-currency system in 2009.
Dr Gono will also be remembered for excessive printing of the dollar and his battle against the zero and for raiding some foreign currency accounts.
As the nation awaits the appointment of Dr Gono’s successor there are a number of issues that will confront the new governor.
While Dr Gono’s number one enemy was inflation, his successor will have to deal with potential deflation.
Indeed, it is a tall order to be a governor when the economy is facing a biting liquidity crunch and credit risk is arguably at all time high, the entire financial sector is on the edge of a cliff as banks are failing to raise enough capital.
There is no room for quantitative easing; tapering off expenditures is a mirage while prospects for an active discount house market are next to none in the medium term leaving little hope for an active interbank market.
To propose the re-introduction of money market instruments when there are no discount houses will be foolhardy.
While the move by Government to assume the RBZ debt is commendable the business approach at the apex bank has to change, the move to shed off all associated enterprises of RBZ is a step in the direction because the US$200 million required for the recapitalisation of the central bank is a sub-optimal amount given the disappointing state of banking in Zimbabwe.
The onus is on the new governor and the acting governor, Dr Charity Dhliwayo, to review the requisite capital levels which can leave the bank well capitalised in order to adequately oversee the banking sector.
This will dovetail with the Zim Asset projections which are envisaging a significant growth of the finance services sector between 2013 and 2014.
The new governor will definitely need to review the prevailing capital requirements of US$100 million regardless of the phased nature of the threshold.
It is my firm belief that US$100 million capital levels are too high for the local banking sector given the size of business being underwritten as well as the imminent risks which can threaten the sector.
The focus must be on capital adequacy and not the absolute figure. Focus should be on the Basel Accord as most countries which are in compliance with even Basel III are not required to meet steep capital requirements.
There also has to be a correlation between the capitalisation levels of the central bank and those of the entire banking sector.
The higher the capitalisation levels of the sector in general, the lower the demand for a substantial capitalisation level for the apex bank.
The new governor can only utilise moral suasion as the best management tool for the sector, any unilateral move can be met with resistance as evidenced by the recent MOU document which could not find takers.
If there is one variable which is lacking in Zimbabwe’s banking sector, it is confidence. There is need for a behavioural change from the financial services sector given the attempts by the public to avoid charges.
Given a choice, most Zimbabweans are no longer even interested in accessing their salaries through the banking system as they feel that they will be prejudiced of the little that they are earning.
The unbanked percentage of the populace is so high which shows that there is scope for financial inclusion, the argument of Zimbabwe being over-banked does not hold water given such a scenario where only two people in 10 seem to be have a bank account.
Policies compelling banks to advance about 25 percent of their loan book to SMEs seem noble, but not sustainable considering the market is already saturated with sub-prime loans.
Relationship marketing as model of banking has to be given prominence, a culture of desperation where clients borrow money without a convincing mechanism to repay is a chalice and proper banking models have to be inculcated.
The RBZ Guidelines on Corporate Governance must be reviewed, owner managed banks are proving a thorn in the flesh of banking sector growth with most of the non-performing loans being insider loans.
If an internal loan per employee ratio for all the banks is to be determined, it will most probably reveal that about 85 percent of advances went towards at most 3 percent of the staff which is mainly senior management.
Therefore, addressing the matter of loans is not a preserve of ordinary people. In fact, a greater chunk of NPLs are decently collaterised leaving the RBZ boss with the unenviable task of correcting the corporate governance anomaly which can hamper the prospects of the entire sector.
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