Zimbabwe Monetary Policy Statement – January 2012

Zimbabwe Monetary Policy Statement – January 2012
Published: 01 February 2012 (1794 Views)
The Reserve Bank of Zimbabwe (RBZ) yesterday released the January 2012 Monetary Policy Statement. The RBZ notes that despite the lack of a lender of last resort, illiquidity in the market, limited lines of credit and a lack of an active money market, developments in the banking sector are encouraging considering and most of the banking institutions appear to be stable. However, the issue of increasing NPLs is a major concern. We highlight below the key points:

Deposits
 Deposits grew over the period January to November 2011 by an average of US$ 88.4m on a monthly basis, whilst consolidated deposits (net of interbank deposits) amounted to US$3.2bn as at 30 November 2011 up 41.7% from 30 November 2010.

 Year on year growth in deposits has been on the decline from 80% in September 2010 to 40% in September 2011 but rose in November 2011 to 50%. Deposits however continue to be of a short term nature with short term deposits constituting 89.3% of the total deposits in the banking sector as at 30 November 2011.
 
Lending
 Total credit to the private sector increased by 84.3% from US$1.6bn in November 2010 to US$ 2.9bn in November 2011. As a result of the growth in the deposit base and expanded credit, the loan to deposit ratio (excluding offshore lines of credit) increased from 61.9% in December 2010 to over 71.7% by end of December 2011. Including the offshore credit lines the loan to deposit ratio for December 2011 was over 87%. A large proportion of the banking sector credit is also of a short term nature.

 Credit to the private sector comprised of loans and advances (83%), mortgages (6.2%), Bankers’ Acceptances (BAs) (5.8%), other investments (2.7%) and bills discounted (2.3%). Loans and advances were largely channelled towards distribution (17%), agriculture (16%) and manufacturing (18%), communication (16%), services (15%) and mining (6.4%) sectors. Total loans and advances to individuals amounted to 15%.
 
Interest Rates
 As at end of October 2011, nominal lending rates quoted by banks averaged between 8% and 32% with most of the banks quoting rates of around 20%. This has been perpetrated by the liquidity constraints, high demand for credit, the lack of an active money market, high risks and limited lines of credit. Time deposit rates are also low ranging between 0.15% and 17%.

Financial Sector Developments
 The current banking structure comprises 26 operational banking institutions, 16 asset management companies and 157 microfinance institutions under the RBZ’s supervision.

As at 31 December 2011, 20 out of the 25 operational banking institutions were in compliance with the prescribed minimum capital requirements, of US$12.5m for commercial banks, US$10.0m for merchant banks and US$10.0m for building societies.

 As at 31 December 2011, the weak and troubled banks had 4.14% market share of assets, 2.67% of deposits and 3.84% of loans.

 The RBZ also notes that there has been a gradual deterioration in asset quality as indicated by the level of NPLs which is now trending towards the watch list category.

The RBZ called for banking institutions to enhance their credit risk management systems with special emphasis on credit assessment, origination, administration, monitoring and control standards.
 
 Kingdom Financial Holdings Limited has since reported that they have reached an agreement with AfrAsia Bank Limited whereby the latter will inject equity capital amounting to US$ 9.5m. This should ensure that the Bank is now in compliance with the minimum capital requirements. Renaissance Merchant Bank’s curatorship period has been further extended to 3 March 2012 to allow for the recapitalisation issues currently underway.

 The undercapitalised banks have been given up to 14 February 2012 to finalise their recapitalisation initiatives or mergers and acquisitions. By 29 February 2012, the RBZ will then engage those institutions that would have failed to identify credible partners and conclude the recapitalisation transactions, under the Troubled and Insolvent Bank Policy by no later than 31 March 2012.

Consequently with effect from 1 April 2012, banking institutions not compliant with the minimum capital requirements will not be allowed to conduct banking business. The deadlines thus cancel any dispensations for compliance which had been given to non-compliant institutions.

 Banks were urged to release some of the Nostro account balances held with foreign banks so as to improve the local liquidity situation.

 The RBZ also emphasised the importance of setting up a Credit Reference Bureau in order to assist the banking sector to manage the growing credit risk by limiting borrower leverage.

 The Prudential Liquidity Ratio (PLR) is also set to be increased from the current 25% to 27.5% by 31 March 2012 and 30% by end of May 2012.

 Outstanding Statutory Reserve balances at the Reserve Bank amount to US$83.4m and the Ministry of Finance (MoF) announced that Treasury would be issuing instruments to deal with the matter.
 
National Payment Systems
 Electronic transactions for 2011 amounted to US$34.0bn, up 56% from US$22.0bn for 2010. Total RTGS system values totalled US$33.0bn against US$21.0bn for 2010. Cheque payment transactions valued at US$65.0m were cleared in 2011 up from US$42.0m in 2010. US$905.0m ATM transactions were done in 2011, growing by 190% from US$312.0m in 2010. POS transactions registered a 384% increase to US$249.0m compared to US$51.0m in 2010. The value of mobile payment transactions increased by 575% to US$8.1m in 2011 from US$1.2m in 2010 while internet values increased by 132% to US$532.0m from US$230.0m in 2010.
 
ASSESSMENT
The MoF recently allocated US$20.0m to the RBZ, further there are current negotiations with the Afreximbank for an additional US$80.0m to boost the lender of last resort facility.

We are optimistic that these funds will assist the RBZ to revive interbank lending and ease the transaction problems associated with the liquidity constraint. Growth in confidence in the banking system remains critical to encourage longer term deposits; this will also bode well for growth in the credit terms.

Companies are currently struggling to deal with loan repayments given the high lending rates, thus the setting up of a credit bureau will go a long way in enabling a part of the risk element to be discounted thereby lowering lending rates.

The economy seems set to continue on its growth path, we view the local bourse as a definite entry point to valuable economic sectors and urge investors to take advantage of the current depression to take position in quality stocks.

Our picks in the financials would be Barclays for the long-term given their more cautious lending policy, while CBZH and NMBZ Holdings offer speculative opportunities. Credit retailers such as Edgars, Pelhams, TN Holdings and Truworths are also likely to benefit from the establishment of the credit bureau although we estimate that credit sales growth will most likely stabilise as most individuals and institutions are already overstretched.

We recommend investors stay clear of the highly indebted companies including RioZim given the illiquidity in the economy and unlikely lowering of bank lending rates in the short term. Companies currently undertaking recapitalisation strategies such as CFI Holdings, however make an interesting watch.
 

- Imara Stockbrokers

 0

You May Like These Videos

Comments

There are no comments.

Latest stories

Knox Mutizwa wins August Goal of the Month award

by kickoff | 05 November 2018 | 914 Views

BREAKING: Gandawa on the run

by Staff reporter | 05 November 2018 | 1734 Views

Econet cannot distribute Kwese TV content to Zimbabwean viewers

by Staff reporter | 05 November 2018 | 1326 Views

Shoot-out robbers arrested

by Staff reporter | 05 November 2018 | 1359 Views

Mnangagwa ally warns economic saboteurs

by Staff reporter | 05 November 2018 | 1309 Views

Chamisa mobilises supporters for mass protests

by Staff reporter | 05 November 2018 | 1093 Views

LISTEN: Acie Lumumba speaks on how he got paid

by Staff Reporter | 05 November 2018 | 910 Views

Dzamara speak on Zanu-PF fights

by Mandla Ndlovu | 05 November 2018 | 868 Views

Minister Raj Modi Modi donates salary

by Mandla Ndlovu | 05 November 2018 | 745 Views

'I am a Trillionaire' Magaya says

by Mandla Ndlovu | 05 November 2018 | 1170 Views

Supermarkets to be blacklisted over cooking oil

by Mandla Ndlovu | 05 November 2018 | 738 Views

UK army to recruit from Commonwealth

by BBC | 05 November 2018 | 804 Views

Magaya opens up on arrest

by Mandla Ndlovu | 05 November 2018 | 797 Views

Kambarami is still 'Deputy Mayor'

by Mandla Ndlovu | 05 November 2018 | 660 Views

'Import ban must not go beyond December 21'

by Staff reporter | 05 November 2018 | 745 Views

Prophet Magaya puts fresh spin to arrest

by Staff reporter | 05 November 2018 | 755 Views

Chamisa's sign language interpreters get thumps up

by Staff reporter | 05 November 2018 | 745 Views

Mnangagwa to review Mthuli Ncube's 2% tax again

by Staff reporter | 05 November 2018 | 707 Views

Lumumba to be probed by ZAAC?

by Staff reporter | 05 November 2018 | 530 Views

Dzamara speak on ZANU PF fights

by Mandla Ndlovu | 05 November 2018 | 494 Views

Zimbabwe as a new gateway into Africa

by Minister of Finance Prof Mthuli Ncube | 05 November 2018 | 727 Views

Chiwenga's ex-wife looted millions

by Mandla Ndlovu | 05 November 2018 | 1101 Views

We are our own worst enemies

by Mapozho Saruchera | 05 November 2018 | 776 Views

Mnangagwa to deal with unexplained wealth and bank deposits

by Staff reporter | 05 November 2018 | 723 Views

WATCH: Chiwenga talks about Prophet Walter Magaya's lipstick

by Staff reporter | 05 November 2018 | 716 Views

Lumumba Saga takes new twist....War vets bay for Mutsvangwa's blood

by Mandla Ndlovu | 05 November 2018 | 783 Views

Chamisa demands Presidency

by Mandla Ndlovu | 05 November 2018 | 675 Views

Zimbabwean teachers miss out on New Zealand opportunity

by Staff Writer | 05 November 2018 | 617 Views

Zimbabwe to introduce e-provisional driver's exams

by Staff reporter | 05 November 2018 | 663 Views

Zimbabwe to supply water to South Africa

by Staff reporter | 05 November 2018 | 661 Views

Mnangagwa claims that 'good times will soon roll'

by Staff reporter | 05 November 2018 | 628 Views

Zimbabwe as a new gateway into Africa

by Hon. Prof Mthuli Ncube | 05 November 2018 | 722 Views

Chiyangwa appoint Karikoga Kaseke

by Staff reporter | 05 November 2018 | 628 Views

ZCTU demo: Ruling today

by Staff reporter | 05 November 2018 | 582 Views

Missing cop found dead

by Staff reporter | 05 November 2018 | 713 Views

Tagwirei marries long-time girlfriend

by Staff reporter | 05 November 2018 | 1113 Views

Zimbabwe relaxes maternity leave entitlement

by Staff reporter | 05 November 2018 | 671 Views

Zimbabwe to receive drugs, ambulances from India

by Staff reporter | 05 November 2018 | 596 Views