Finance minister Tendai Biti was unavailable for comment last week.
Insiders said it had taken this long because Biti was trying to look at the best alternative in the absence of treasury bills on the market.
“He (Biti) has said that banks can use title deeds as security though he is still to write a letter to the bankers,” a close source said on Friday.
The money will attract an interest of 5% per annum. Although banks are supposed to borrow overnight, there is a leeway that they can repay the money in three months.
Reserve Bank of Zimbabwe (RBZ) governor Gideon Gono is expected to announce the use of title deeds as security this week.
However, Bankers Association of Zimbabwe (BAZ) president John Mushayavanhu told Standardbusiness the parties have not yet finalised on the items to be used as security and discussions were ongoing.
“We will have to meet and finalise as the three parties — Ministry of Finance, Reserve Bank and banks — to agree on the way forward,” Mushayavanhu said on Friday.
The use of title deeds as security comes two months after BAZ had recommended that statutory reserves owed by the central bank be converted into treasury bills to be used as security to borrow overnight from RBZ.
RBZ scrapped statutory reserves—the amount of money any bank has to maintain with the central bank at zero percent for every deposit received from a customer — in June as “part of risk containment measures in the banking system”.
Other than the conversion of statutory reserves, bankers had also proposed the use of Bankers Acceptances as security to the RBZ under the lender of last resort pool of funds.
Bankers Acceptance are short-term credit investments created by a non-financial firm and guaranteed by a bank and are traded at a discount from face value on the secondary market.
RBZ last performed the lender of last resort role in 2008 and analysts say its reintroduction will boost confidence in the banking sector, which has attracted foreign investors.
However, the absence of treasury bills on the market means that liquidity will remain constrained and this effectively kills a vibrant secondary market of trading financial instruments, which is a critical source of revenue and liquidity for the sector.
In developed financial markets, banks diversify their risks by investing in treasury bills and municipal bonds among others thereby stimulating various investment avenues for the economy.
Currently in Zimbabwe, banks are by default only investing in loan assets in the absence of treasury bills and other quasi-government bonds.
This effectively increases concentration risk in one asset class and in turn can cause systemic risks if some of the loans being created by banks do not perform.
Biti believes that although the money to perform the lender of last resort role is small relative to the required resources, the move should stimulate inter-bank activity and facilitate increased advances of credit by banks.