Banks on course to meet US$100 million target 

Source: Banks on course to meet US$100 million target – The Zimbabwe Independent March 9, 2018

THREE out of 13 banks have so far surpassed the US$100 million capital adequacy requirement, with some financial institutions on course to attain the target, businessdigest can report.

By Melody Chikono

In 2014, the Reserve Bank of Zimbabwe (RBZ) increased the minimum capital requirement for commercial and merchant banks to US$100 million from US$12,5m and US$10m respectively.

This was to ensure that sufficiently capitalised banks would be able to effectively respond to the financial requirements of the business community and other potential borrowers.

Despite the liquidity challenges, the central bank remains optimistic that all the banks will meet the capital adequacy requirement by 2020.

RBZ bank supervision director Norman Mataruka told businessdigest last week that compliance with regulatory capital levels will be achieved by various means including organic growth, rights issues as well as fresh capital injections from existing shareholders and new investors.

“Further, banking institutions have made significant progress towards attainment of minimum capital requirements effective 2020.

As at 31 December 2017, three banking institutions were already compliant with the 2020 minimum capital requirement of $100 million for the tier-1 banking group, while other banking institutions remain on course with their capital

Mataruka said the liquidity situation in the country has not negatively impacted on the banking institutions’ capitalisation levels as indicated by the adequacy levels, with others marginally below the requirement.

Generally, he added that banking institutions have not experienced constraints in raising capital to meet minimum capital requirements but capital growth has largely been organic, augmented by private placements and shareholder injections.

“However, availability of funding in the form of credit lines has been affected by the perceived high country risk. It is noteworthy that, going forward, capital inflows are envisaged to improve stemming from the various initiatives across the country’s key economic sectors under the new economic dispensation,” he said.

Meanwhile, Mataruka added that the level of non -performing loans (NPLs) is expected to continue to decrease in response to a number of holistic policy measures by the Reserve Bank and government aimed at fostering a responsible borrowing culture including the operationalisation of a credit reference system and promoting access to affordable banking services and products.

A special purpose vehicle created by the central bank to absorb NPLs, the Zimbabwe Asset Management Corporation, stopped loan acquisition in the March 2017

The level of NPLs has continued to improve from a peak of 20,45% in 2014, to 7,08% as at 31 December 2017 and ratios for most banks are within the 10% RBZ threshold and the 5% internationally acceptable benchmark.

“We do not see NPL ratio rising again to prior levels in the near future. Banking institutions have also strengthened their credit risk management systems and built capacity in this area.

The Reserve Bank continues to monitor the NPLs and the effectiveness of banks’ credit risk management practices to minimise re-emergence of high NPLs.

With a positive economic outlook buttressed by supportive monetary and fiscal measures, loan delinquency is expected to be contained to acceptable levels, as the balance sheets of banking institutions generally mirror the state of macroeconomic activity,” he said.