HomeBusinessBrokerage firm warns on liquidity reforms

Brokerage firm warns on liquidity reforms

In his monetary policy statement, central bank governor Gideon Gono said the prudential liquidity ratios will be raised to 27,5% by March 31 from the current 25%.

He said it will rise to 30% by the end of May. A certain percentage of the bank’s assets should be liquid, that is, it can be converted into cash quickly and with minimal impact to the price received. The commonly used liquid assets are cash and short-term securities, treasury bills (TBs).

This means that by the end of May 30% of each bank’s asset should be in the form of cash.

In its analysis of the monetary policy, MMC Capital said that raising the prudential liquidity ratios implies that going forward, banks will reduce their lending, as they are now required to increase the levels of their liquid asset base.

“The increase of the loan to deposit ratio (LDR) represents aggressive lending and yet the operating environment calls for more conservatism. It is against this background that we expect the LDR to decrease signalling the conservative approach likely to be adopted by banks,” MMC said.

In the past the ratio was as low as 10% as banks had TBs. Since the use of multi-currencies there has not been TBs in the market due to government strict cash budgeting system which states the country eats what it has killed.

MMC warned that the moderations of instant cash withdrawals is likely to impact negatively on the banking sector as more funds are likely to flow outside the banking system. “The expected growth in bank deposits is likely to shrink on the back of disintermediation,” MMC said.

Recent Posts

Stories you will enjoy

Recommended reading