In February, the Ministry of Finance gave banks the nod to use title deeds as security to enable them to tap into the US$7 million lender of last resort fund in the event of short-term liquidity mismatches.
The cheap Reserve Bank of Zimbabwe (RBZ) funds attract an interest of 5% per annum. BAZ president John Mushayavanhu told Standardbusiness on Thursday that discussions were ongoing with the RBZ on alternative securities to be used to access the money.
“The issue that has been agreed on is the use of title deeds but we are still negotiating with the central bank to allow the use of alternatives such as BAs (Bankers Acceptance),” Mushayavanhu said.
“If one doesn’t have title deeds, he can use BAs to access the money.”
BAs 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.Banking executives confided last week that the conditions to access the money were not conducive in the absence of treasury bills on the market.
“In the absence of treasury bills, security is tricky. Banks are finding it silly to register the title deeds,” one executive said.
Mushayavanhu said registering title deeds would take a maximum of a day and the borrower has to meet the costs involved unlike when using BAs. He said since the lender of last resort function of the central bank was restored, no bank has sought overnight accommodation from RBZ. Yet bankers who spoke to Standardbusiness said in as much as banks would want to get cheap money from the central bank, doing so risks triggering an investigation into the bank’s operations by the RBZ.
RBZ governor Gideon Gono has in the past warned that the central bank has lost appetite for curatorships and banks that fail would be allowed to sink. Mushayavanhu said the lender of last resort role is there for insurance that no bank would collapse and provide the confidence in the banking sector.
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RBZ last performed the lender of last resort role in 2008 and analysts say its reintroduction would 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.
