THE Reserve Bank of Zimbabwe (RBZ) has set new US dollar linked minimum capital requirements for banks and other financial entities, effectively hiking the lowest regulatory capital thresholds for the banking sector.
The RBZ last year set 2020 minimum capital threshold for large indigenous commercial and all foreign banks at $200 million, but kept them at $25 million for small commercial, merchant and development banks, building societies, finance and discount houses.
Minimum capital requirements for deposit taking institutions had been fixed at $7,5 million by end of this year. The previous minimum capital level regime for banks and other financial entities had been set in June 2018.
But RBZ Governor said in a monetary policy committee (MPC) statement released this week that large indigenous banks and all foreign banks will now only need to have minimum capital equivalent to US$30 million, effectively hiking the threshold.
Commercial banks, merchant banks, development banks, finance and discount houses are now required to have minimum capital equivalent to US$20 million while deposit taking institutions must have equivalent of US$5 million.
The minimum capital threshold for microfinance institutions has been set at US$25 000 local currency equivalent. The Zimbabwe dollar traded at $17,2 against the United States dollar on the interbank market yesterday.
The newly announced US dollar pegged minimum capital levels effectively amount to higher capital threshold in local currency given that the Zimbabwe dollar has lost significant ground since being floated early last year.
Regulatory capital is the minimum capital requirement as demanded by the regulators; it is the amount of money or other assets that have monetary value that a bank must hold in order to operate efficiently with minimal risk for depositors.
A regulator’s primary concern is that there is sufficient capital/assets to buffer a bank against large losses so that deposits are not at risk, with the possibility of further disruption in the financial system being minimised.
“The MPC noted the need for banks to hold sufficient capital to ensure continued stability and soundness of the financial services sector, as well as ensuring that banks continue to be able to underwrite financial transactions that are necessary for improving production and productivity,” Dr Mangudya said in a statement.
The central bank chief said in order to give the banks and all regulated entities time to comply with the requirements, the effective date for compliance with the new minimum capital requirements is 31 December 2020.
Meanwhile, the MPC Dr Mangudya said the MPC was pleased to note that a total of $800 million had so far been disbursed under the MBA window created to support banks with productive sector funding requirements. This amount is well within the Committee’s initial target of $1 billion agreed in 2019. He said RBZ shall continue to administer this facility, while taking appropriate measures to limit its impact on inflation and the exchange rate.
He added that the MPC had also resolved to maintain the bank policy rate on overnight Accommodation at 35 percent.
Dr Mangudya said the interest rate on the Medium-term Bank Accommodation (MBA) facility shall continue to reflect the yield on the Treasury Bills auction rate, which is currently at between 15 to 18 percent.
The MPC emphasised that access to the MBA window crucially depends on the quantum of medium and long-term productive lending undertaken by banking institutions.
Further, the bank had imported additional bank notes and coins to the tune of $400 million to ease cash shortage and eliminate premiums on selling of cash.
A total of $150 million was disbursed in the last quarter of 2019 to give a total of $1,1 billion of notes and coins in circulation in the country as at December 31, 2019. ebusinessweekly