Zim's Financial Sector Very Worrying – Report

The Periodic Report was prepared by the Civil Society Monitoring Mechanism (CISOMM). It is for April and May 2011.

“The Reserve Bank of Zimbabwe (RBZ) is still constrained to play its supervisory role,” the Periodic Report said.

“While lending has improved as have deposits, it is worrying to note that the Ministry of Finance in May raised concern over the high rate of loan repayment defaults. A Report on the sector noted that only 34 percent of the loans had been re-paid. Perhaps the biggest default that has triggered shocks across the sector is the US$50 million loan by mining giant Rio Zimbabwe Limited (RioZim).

“Related to this are reports that ReNaissance Merchant Bank (RMB) had a financial gap of US$16,5 million which threatened not only the bank but several other banks.”

The CISOMM Periodic Report said this had prompted the Ministry of Finance currently under Tendai Biti, and the RBZ to intervene through the National Social Security Authority (NSSA) which had since stepped in.

“Controversy has, however, shrouded the decision and form of government intervention and the issue has been heavily politicised,” the Periodic Report points out.

“Challenges in the banking sector severely threaten jobs; with reports indicating that last year 1 000 jobs were lost in addition to 1 500 lost from the RBZ this year. On the whole, there are clear signs that lending needs to be contained and managed carefully to avoid a credit driven bubble bursting. Meanwhile, interest rates are still high making borrowing very expensive and unattractive.”

Early this month, RBZ Governor, Dr Gideon Gono, revealed that five banks had still not met the minimum capital requirements by the March 31, 2011 deadline.

In a report Gono said Kingdom Bank Limited (Kingdom), Royal Bank of Zimbabwe Limited (Royal), the Zimbabwe Allied Banking Group (ZABG), Genesis Investment Bank Limited (GIB) and Renaissance Merchant Bank Limited (RMB) remained grossly under-capitalised.

The RBZ had set June 30 as the new deadline for financial institutions operating in Zimbabwe to meet capital requirements of US$12,5 million for commercial banks and US$10 million for merchant banks.

Gono said 15 out of 16 Asset Management Firms had, meanwhile, complied with the minimum paid up equity capital requirement of US$500 000 in Zimbabwe.