|
THE Reserve Bank of Zimbabwe (RBZ) tapped into the international reserves backing the statutory reserves of banks and sold its shares on the Zimbabwe Stock Exchange to finance its operations from January last year to March this year without board oversight, a report by the International Monetary Fund (IMF) shows.
In 2008, RBZ governor Gideon Gono announced that the central bank would return to its core business after being involved in quasi-fiscal operations.
However, a comprehensive 53-page report compiled after the Annual Article IV consultation meeting in March showed that RBZ was failing to honour its promises and was deviating from its core business of financial sector and prices stability.
“Without appropriate oversight, the RBZ used the international reserves backing the statutory reserves of banks (US$80 million) and sold shares from its portfolio of securities at the Zimbabwe Stock Exchange (US$38 million) to finance its activities during January 2009 – March 2010, including operating expenses, quasi-fiscal activities, and repayments of debt to selected creditors,” the IMF said in a report released on Tuesday.
IMF said reducing banks’ exposure to the financially distressed RBZ would help mitigate risks facing the banking system.
“Specifically, a dedicated RBZ’s nostro account backing banks’ deposits to the Real Time Gross Settlement account should be established and its balance published daily,” it said.
It said the RBZ must dispose off non-core assets to “refund banks’ statutory reserves on pre-March 2010 deposits.
“The resolution of the remaining banks’ claims on the RBZ would need to be undertaken as part of the overall resolution framework for the RBZ’s liabilities”.
It recommended the bifurcation (splitting) of the RBZ balance sheet to isolate non-core assets and liabilities from those that are essential for performing RBZ core functions and the adoption of a resolution framework for overdue liabilities and transparent disposal of non-core assets.
The global lender warned that counterparty and credit risk in the banking sector ranged from medium to high due to a significant exposure to the RBZ (about 70% of banks’ capital), the drought-prone agricultural sector (20% of the loan portfolios), and the exuberant credit growth.
It added there would a significant increase in non-performing loans due to the projected slowdown of the economy.
The IMF said liquidity risk was high due to the deteriorating balance of payments position potentially causing a reduction in banks’ foreign assets.
“The banking system is also ill-equipped to deal with temporary liquidity shocks with no lender of last resort, the unavailability of the statutory reserves deposited at the RBZ, virtually no interbank lending, and a level of country risk that precludes liquidity support from abroad,” the IMF said.
IMF said external auditors reported serious weaknesses in internal controls and financial reporting, and comprehensive monetary statistics have not been published since early 2008.
It said that although parliament has passed amendments to the RBZ Act, the amendments did not reflect a number of the Fund’s technical assistance recommendations.
A new RBZ board, chaired by Gono, was appointed in May to steer the sinking ship at a time when creditors were baying for the bank’s assets.
IMF had recommended the appointment of a non executive chairman at RBZ.
RBZ is under funded to perform its lender of last resorts function exposing banks to risk in the event of shocks in the sector.
This year, RBZ was allocated US$10 million for operational uses, an amount monetary authorities say is too little.
But treasury believes more funding would be channelled after a comprehensive audit of the bank.
RBZ reforms are underway to clean the mess at the institution and align it global best practice.
BY OUR STAFF
 |
Show/Hide comments
Show/Hide comment form