A local stockbroking firm has described the monetary policy presented by Reserve Bank of Zimbabwe governor John Mangudya last week as realistic, especially given that the Central Bank chief did not have many options.
BY VICTORIA MTOMBA
The stockbroking firm said the adoption of Non-Performing Loans (NPLs) would go a long way in improving liquidity in the sector, as well as helping banks focus on performing customers.
“Our view is that the RBZ is being pragmatic in light of limited monetary policy tools to rein in the appreciating currency, thus a focus on the supply side is the best bet. The adoption of the debt resolution bill will go a long way in addressing negative perception issues with regards the RBZ balance sheet and ultimately its capitalisation going forward,” said the stockbroking firm.
“Systemic risk however remains isolated to small banks with limited balance sheets. The credit reference bureau is a positive development with regards to reduction of NPLs going forward and we view the allocation of funds as an absolute necessity in reducing moral hazards in the financial system.”
Bankers Association of Zimbabwe president Sam Malaba said the BAZ was happy that Zimbabwe Allied Management Company has helped in the removal of NPLs from banks.
“The monetary policy was positive. The interbank facility that would improve the liquidity situation and the demonetisation process is welcome as people will no longer claim that the banks have their Zimbabwe Dollars and the people will realise that the multi-currency is here to stay,” he said.
Mangudya said in his statement that credit risk remained a challenge as evidenced by the average NPLs to total loans ratio of 16% as at December 31 2014 compared to 20% as at September 30 2014.
“The decline in the NPL ratio noted over the quarter is largely attributable to the closure of Interfin and Allied banks and general improvement in loan quality in a few banks,” he said.
The government, through its purpose vehicle Zimbabwe Asset Management Company (Zamco), has acquired NPLs amounting to $65 million to date using other funding mechanisms provided in its funding strategy.
The first phase of Zamco wouldfocus on NPLs that are secured and are not for insiders to prevent creating a moral hazard in the banking sector.
“As part of the preparatory work, the Reserve Bank in conjunction with Zamco carried out a market-wide exercise in December 2014 to ascertain the level of NPLs that meet the eligibility criteria. Banking institutions will, by March 31 2015, be advised of NPLs in their respective loan portfolios that meet Zamco’s eligibility criteria,” he said.
Mangudya said trade deficit narrowed by 14% to $3,3 billion from $3,9 billion in 2013 due to the decline in crude oil prices and policies put in place by the bank to utilise resources.
Mineral exports accounted for 51% of total export earnings between 2009-2014.
Trade deficit was $3,3 billion from the $6,4 billion imports while exports were $3,1 billion.
Balance of payment improved to $351 million in 2014 from $366 million in 2013.
The bank expects inflation to remain in the negative territory in 2015 due to the effects of depressed international oil and food prices, weaker currencies against the United States Dollars and the positive effect of disinflation.
Mangudya increased the channels for distribution of the bond coins and the distribution now includes all Easy Link Money Transfer Agent outlets which shall supplement banks in making the coins available to the public without charging commission or withdrawal fees.
The central bank said it had observed that a number of local financial institutions had adjusted interest rates downwards to levels below 10% per annum for performing customers in the productive sectors of the economy.
“The Reserve Bank would like to encourage those that are on the wrong side of history and still charging interest rates of 4% above the cost of funds per annum to conduct a self-introspective exercise of their risk management philosophy.”
“Facility fees or arrangement fees of above 2,5% are high and interest rates of 4% above the costs of funds per annum for productive sectors of the economy are not sustainable as they are a good breeding ground for non-performing loans which the Reserve Bank is trying to rein in,” Mangudya said.