via Five things Mangudya needs to do – DailyNews Live by Guthrie Munyuki 31 MARCH 2014
New Reserve Bank of Zimbabwe governor John Panonetsa Mangudya has what it takes to restore vibrancy and the zing in the banking industry.
But a lot will depend on whether he will receive the support from his principals to implement the five key things necessary to turn around the fortunes of the exposed banking industry.
Mangudya assumes office on May 1 after both President Robert Mugabe and Finance minister Patrick Anthony Chinamasa saw a perfect fit into the future of the central bank and the envisaged turnaround strategy.
The former CBZ Holdings chief executive officer replaces Gideon Gono who retired at the end of November last year.
Of course not everyone views Mangudya as the perfect choice but the job is not about the feel good factor or who is popular.
It is about delivery and having impeccable credentials.
A lot has been said about Mangudya having little to do in the absence of the Zimbabwe dollar which would traditionally see the RBZ influencing interest rates and monitoring money supply as part of its monetary policy.
Greece finds itself in the same situation as Zimbabwe where it is using the Euro after the upheaval of 2009 left its economy in tatters.
As part of the bailout by the European Union, Greece discarded its currency and adopted the Euro while undertaking austerity measures to revive its economy.
Mangudya needs to do five things to succeed in his new job as the RBZ chief.
Increase foreign currency deposits
Mangudya has the mammoth task of increasing the foreign currency deposits. This will increase liquidity. Doing this requires financial acumen so that companies which are currently teetering on the brink of collapse as a result of liquidity challenges are able to access money through normal banking channels.
Restoration of vibrancy in the banking industry is important. Mangudya needs to come up with answers such as how do you enhance financial intermediation in a dollarised economy?
Plugging exports proceeds’ leakages
As a financial advisor to government, Mangudya needs to seriously identify and work on the areas which need scrutiny to minimise leakages of exports proceeds so that they will continue to be available in the economy. As it is, most companies of foreign origin, which are exporting, keep their proceeds outside Zimbabwe yet if that money is banked with a local financial institution, it helps ventilate the market and improve liquidity.
Plugging exports proceeds leakages should be a top priority. Former Finance minister Tendai Biti, during his tenure, tried to address liquidity challenges by ordering foreign banks operating here to repatriate 25 percent of the money held in nostro accounts.
The difference here is that by acting on export proceeds’ leakages, the RBZ would make sure that all the money is resident in the local market. In addition Mangudya should ensure that there is SYNCRONISATION of all government financial transactions entered into with foreign partners.
Restoring Lender of Last Resort function
The Afreximbank $100 million kitty which was unveiled recently for the purposes of capitalising the central bank should enable Mangudya to return the Lender of Last Resort (LOLR) function to the apex bank. The LOLR function would positively complement the inter-bank market.
Zimbabwe has not had an interbank market. As the Governor he will lead the reform and capitalisation of the bank. This will bring vibrancy into the local financial sector and that vibrancy is a very critical requirement for improving confidence in this sector.
Strengthening supervisory role
The supervisory role and surveillance services are the mandate of the central bank and these need to continue to be done efficiently to minimise bank failures. In this regard, banks will need to be prudent in the granting of loans to undeserving entities.
This, the RBZ should monitor and where errant banks are detected severe sanctions and far-reaching punitive measures should be instituted.