Information obtained on Friday shows that the instrument will be backed by performing trade-related loans of banks which could then be used as security in inter-bank placements.
“In this way, it is expected that banks with deficit liquidity will be able to access liquidity from those with surplus. We believe that the anticipated velocity and multiplier effect will greatly ameliorate the short term liquidity challenges that banks are facing,” Gift Simwaka, Afreximbank’s regional manager for southern Africa, said on Friday.
Simwaka said while the move is not a panacea to the liquidity problems, “it will supplement the other measures the authorities are taking to deal with the liquidity situation, and the bank (Afreximbank) stands ready to support these efforts within the scope of its mandate.”
Simwaka said the US$80 million trade-backed liquidity support facility is being worked out and should be implemented as soon as all the necessary formalities are completed.
Once the underlying processes, including approvals are completed, the debt instruments will be issued.
Simwaka said the targeted tenure is up to two years, but the coupon rate (interest rate) is yet to be agreed.
He said there would not be one rate but several “reflecting tenor, as some instruments may be of a one-year tenor, as well as the discount associated with the underlying trade assets from selected banks that will secure the bonds on a bank-to-bank basis”.
The proposed trade-backed liquidity support facility is set to complement current efforts to improve the liquidity situation which has haunted the banking sector.
Last month, Treasury and the Reserve Bank of Zimbabwe (RBZ) introduced a raft of measures to ease the problems.
The Ministry of Finance gave RBZ US$20 million to perform its lender of last resort role. This means that RBZ now has US$27 million to bail out banks in the event of liquidity mismatches. Finance minister Tendai Biti said last week the fund would rise to US$30 million.
RBZ also instructed banks to keep 25% of their Foreign Currency Account balances in nostro accounts and bring the remainder onshore for on-lending.
As a result of that directive, banks have agreed to remit US$200 million, a move that would ease the liquidity challenges.
RBZ and banks have also reached an agreement over the US$83,58 million owed to banks as statutory reserves.
The central bank scrapped statutory reserves — the amount of money any bank has to maintain with the central bank at 0% for every deposit received from a customer — in June 2010 as “part of risk containment measures in the banking system”.
The deal will result in RBZ boss, Gideon Gono, issuing instruments against the amounts owed to banks. The instruments will have tenors of two, three and four years with interest rates of 2,5%, 3% and 3,5% respectively.
Tradable paper promotes inter-bank trading: Biti
Biti said the instruments will promote inter-bank trading and allow banks to use tradable paper as security when accessing the lender of last resort funds.
This will ensure utilisation of resources which banks have been failing to access.
Biti said institutions not willing to participate in the scheme would have an option of being issued with 15-year bonds at an interest of 3% per annum.
Since November, banks have been facing problems resulting in gridlock especially in Real Time Gross Settlement platform.
The situation has been compounded by the nature of deposits where over 50% of the total deposits are demand and short-term, reflecting a weak deposit confidence.