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Bankers mobilise against Gono’s latest measures

Dumisani Ndlela

BANK executives were this week scrambling to contain imminent bankruptcies in the financial sector which lurched into an unprecedented crisis following Reserve Bank of Zimbabwe (RBZ) measures compelling financi

al institutions to take up a new form of bonds meant to mop up liquidity on the market.

Market sources said with between 85% and 90% of deposits locked up in bonds and statutory reserves, banks were having little room to acquire new trading assets.

The Bankers Association of Zimbabwe (BAZ), a consortium of bank executives, was this week understood to be mobilising market participants, including asset management firms, against the measures which had ignited a cash crunch in the financial sector.

They were still to come up with a position by yesterday, according to market sources, indicating, however, that a clear position would have been taken by the time RBZ governor Gideon Gono returned from a trip to South Africa next week.

Sources indicated that financial institutions were this week left washed up after paying out over $100 billion for Financial Sector Stabilisation Bonds (FSSBs), whose take-up thresholds are determined by balance sheet sizes.

The institutions had already splurged $65 billion to buy bonds under initial thresholds.

They are expected to spend a further $130 billion for another five-year bond called the Economic Stablisation Bond (ESB), a move likely to hurl them into technical insolvency.

The RBZ, which last week increased the holding thresholds for the five-year FSSBs for financial institutions, again increased the thresholds this week.

Holding thresholds for the five-year FSSBs, which had been increased from 10% of the balance sheet size as at September 30 for commercial banks to 15%, were increased further this week to 25%, while merchant banks, which had moved from 7,5% to 12,5%, had their FSSB holdings increased to 22,5%.

Financial houses, building societies and discount houses, which had their holding thresholds increased from 5% to 10%, last week, were instructed to increase their holdings to 20% while asset management firms, which were compelled to hold bonds amounting to 7,5% of their balance sheet sizes after a five percentage points increase, were this week told to increase their holding thresholds to 17,5%.

Banking sector executives indicated yesterday that there was pandemonium in the sector as many institutions braced for what they anticipated to be imminent closure of financial institutions as a result of the central bank’s measures.

They said with 45% of their balance sheets in bonds, most of them were already insolvent as they were now “completely” unable to give depositors their money back on demand because all funds were now tied up in the bonds and statutory reserves.

The new bonds plus money locked up in statutory reserves meant that commercial banks had very little of depositors’ funds left on their books. One analyst said the banks had locked up between 85% and 90% of depositors’ funds in the new bonds and statutory reserves, leaving them with very little cash for business.

Sources indicated that the cash crisis was highlighted by the fact that banking institutions were already competing for deposits ahead of today’s deadline to fully comply with the central bank’s demand for prescribed bonds holding thresholds.

“Most of the banks do not have cash and are competing for depositors’ funds to raise enough cash to buy the FSSBs to meet prescribed thresholds. It’s going to be worse when they start buying ESBs to comply with the November 17 deadline for institutions to meet their prescribed holding thresholds,” a bank executive told businessdigest, declining to be named for professional reasons.

BAZ president, Pindie Nyandoro, was yesterday unavailable for comment as she was reportedly busy with crisis meetings with bankers.

Above their FSSB holdings, commercial banks will be compelled to hold ESBs amounting to 20% of their balance sheets while merchant banks will have to take up ESBs equivalent to 17,5% of their balance sheets. Finance houses, building societies and discount houses will be forced to hold EBSs equivalent to 15% of their balance sheet sizes respectively.

Asset management firms will be required to hold bonds equal to 12,5% of their balance sheet sizes. The balance sheet sizes used for ESBs are as at October 31, while the balance sheet sizes used for FSSBs are as at September 30.

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