|Proposed LOLR Fund comes under fire|
|Friday, 03 August 2012 00:00|
THE Reserve Bank of Zimbabwe’s proposed Lender of Last Resort Fund has come under fire from local economists saying it is too dependent on external investors. RBZ Governor Dr Gideon Gono recently announced in his Mid-Term Monetary Policy Review Statement that the Government is planning to establish a US$150 million Lender of Last Resort Fund in which it will contribute US$30 million (including the US$7 million already advanced to the central bank), with private investors expected to contribute US$120 million.
Observers are of the opinion that this will result in a long-drawn-out process to set up the fund.
BancABC economist Mr James Wadi said:
“My worry is that the LOLR Fund is largely dependent on external investors to inject some capital to the tune of US$130 million. Given that it has been difficult to solicit the investors to inject this capital, there is a chance that the LOLR Fund may take long to be established.
“Nonetheless, the functionality of the LOLR window is dependent on the availability of Treasury Bills.
“So there is inter-dependency regarding these policies and that is why it is necessary to introduce them as a package for them to be effective.”
The central bank chief also indicated that Government plans to issue short-term Treasury Bills which are expected to promote short-term collateralised lending thus resuscitating the interbank market.
Currently, trading between banks is largely limited to bilateral arrangements instead of being bank-wide.
Mr Wadi, however, believes that the upward review in the minimum capital threshold for all banks to US$100 million is a step in the right direction, at the same time noting that small banks may struggle as a result.
“It had become necessary to do so. The big banks are already encroaching this threshold. However, there is a possibility that the small banks may struggle to raise the required threshold,” he said.
“The smaller banks were already struggling to raise any meaningful deposits as depositors were beginning to shy away from them in preference of ‘safety in big banks’.”
“Therefore, the smaller banks need to turn around their fortunes, either by merging with other banks in order to be more competitive or by looking for other investors to partner with.
“This route was fast becoming inevitable as the market has become unforgiving especially in the aftermath of bank closures.”
An economist with Agribank, Mr Joseph Mverecha, also lauded the move by Dr Gono.
“Higher capital thresholds always act as a buffer against any vulnerabilities, be they exogenous or endogenous shocks to the economy,” he said.
Another economist, Mr Takunda Mugaga, however, does not agree with this sentiment.
He said that the increase in the minimum capital thresholds will affect local banks more than the foreign-owned banks.
In the previous monetary policy statement, Stanchart, Barclays, BancABC and Stanbic declared core capital levels of US$53,2 million, US$33,3 million, US$32,07 million and US$31,9 million respectively, which were well above the required threshold of US$12,5 million.
The domestic banks were competing in the US$13 million to US$18 million declared core capital range.