HomeLocalBanks trapped in liquidity crunch

Banks trapped in liquidity crunch

Constantine Chimakure

BANKS have this week written to the Reserve Bank requesting overnight unsecured accommodation after experiencing serious liquidity problems as depo

sitors’ money is tied up in illiquid stocks, real estate and foreign currency bought on the parallel market.

The rally on the stock exchange late last year and the sharp increase in the price of properties over the same period was triggered by banks which violated the Banking Act and monetary regulations to trade in securities and illiquid assets.

The stock market had been consistently breaking records since July last year, rising a total of 322 111% last year on the back of hyperinflation.

Average growth per day for the industrial sector was averaging close to 10% while the mining sector gained an all-time high of 20,83% in one day this year.

Documents in the possession of the Zimbabwe Independent reveal that banks such as Kingdom and ZABG are facing serious liquidity problems and owed the central bank trillions of dollars in non-payment of statutory reserves and interest.

In a letter to RBZ governor Gideon Gono on Wednesday, ZABG chief executive officer Stephen Gwasira asked the central bank to come to the financial institution’s rescue by providing $2,5 trillion for unsecured accommodation.

“We write to request for unsecured accommodation in the amount of $2,5 trillion for a period of two weeks to cover our immediate cash requirements,” Gwasira wrote. “This situation has been caused by a temporary shortage of security on our part against an increasingly high demand for cash.”

The bank revealed to the RBZ that it had underwritten two initial public offers by underperforming property firms — Pearl Properties and Zimre Properties.

ZABG has over 8,5 million shares in Pearl Properties that were on Monday valued at above $3 trillion. In Zimre Properties, the bank has over 5,2 million shares valued at about $480 billion by the beginning of the week.

“As of this morning (Wednesday), the bank’s position had improved from yesterday following the release to the bank of various securities arising out of matured investments in the market and the receipt of some inflows,” Gwasira’s letter read. “As a result we are in the process of taking delivery of cash amounting to $1,040 trillion from the Reserve Bank.”

He said ZABG would repay the requested accommodation through the sale of its shares in Pearl Properties and Zimre Properties.

“Our strategy (to come out of the liquidity crunch) going forward is to proactively manage our loan book and to intensify our deposit mobilisation initiatives,” Gwasira wrote. “We remain committed to ensuring that our customers’ cash requirements are met and that banking services are extended to the wider public in line with the provisions of our mandate.”

The ZABG boss asked to meet Gono to discuss the bank’s plea.

Another document in our possession reveals that a number of banks failed to meet in full their statutory reserve obligations for the week ended January 19. The reserve payments for that week amounted to $21,4 trillion.

ZABG had a shortfall of $672 billion minus $20,3 billion interest due to the RBZ. The CBZ failed to pay $1,6 trillion and an interest of $48,2 billion. Kingdom had a shortfall of $3,4 trillion minus $101,9 billion interest. Renaissance was short by $100 billion and $3 billion in interest.

As a result of the defaults, $15,2 trillion was collected by the RBZ from the banks.

“These institutions were summoned by the central bank to explain why they had failed to pay for statutory reserves and to lay out their concrete payment plans,” the document read. “While some of these banks such as CBZ have already paid, others such as Kingdom and ZABG appear to be facing formidable liquidity challenges.”

According to some of the banks’ balance sheets as of December 31 last year, the financial institutions channelled depositors’ money into securities and investments, among them buying shares on the Zimbabwe Stock Exchange and foreign currency on the parallel market.

Kingdom invested $23,2 trillion in securities, representing 43% of its total assets. Renaissance poured in $2 trillion or 13% of its assets into securities, while ZABG channelled $8,8 trillion or 26,3%.

The banks reportedly found themselves stuck with shares after the stock market started tumbling last week and the central bank introduced a money tracking system to detect all transactions.

They cannot dispose of their shares and at the same time cannot liquidate the foreign currency through the Real Time Gross Settlement as the RBZ would be able to detect the movement of huge sums of money in both local and foreign currency.

The route the banks can use to liquidate the hard currency, sources said, would be to trade it on the parallel market or suffer massive loss by selling it to the RBZ at $30 000 to US$1.

Most banks argue that while it was illegal for them to buy shares and foreign currency on the black market, it was rational to do so to preserve the value of the depositors’ money in a hyperinflationary environment.

According to the International Monetary Fund, Zimbabwe’s year-on-year inflation is now above 150 000%.

During the banking crisis between 2004 and 2005, the RBZ closed Trust, Barbican and Royal banks for engaging in non-core business such as buying and selling vehicles and bricks. They also failed to observe good corporate governance requirements.

Recent Posts

Stories you will enjoy

Recommended reading