Thursday, November 29, 2012

Zimbabwe: Banks in Panic Mode

Zimbabwe: Banks in Panic Mode

Most commercial banks in Zimbabwe are believed to have plunged into panic mode after Finance Minister Tendai Biti announced plans to introduce measures that could eat into a substantial chunk of the financial institutions' income. Sources in the banking sector said the Bankers Association of Zimbabwe has since engaged Reserve Bank of Zimbabwe Governor Gideon Gono for a Memorandum of Understanding around a number of burning issues. Discussions are likely to revolve around the issues of lending, interest and savings rates and bank charges among a host of other matters.
Treasury also wants banks to agree with the RBZ on a framework for lending rates, but with a 10 percent cap above cost of funding. But the most contentious aspect of discussions is likely to centre on the directive that banks should not levy deposits below US$800.
Minister Biti also directed that all deposits above US$1 000 held for over a month should attract interest of a minimum of 4 percent per annum.
"The measures will do more than harm the banks' income. But the banks have engaged the Reserve Bank of Zimbabwe on the Memorandum of Understanding the minister announced," a source said.
"But if you look at the incomes of most people you realise that very few earn more than US$800. It means banks will provide banking services for free and that will cripple banks," the source added.
Efforts to get comment from the Bankers Association of Zimbabwe president Mr George Guvamatanga failed as he did not answer his mobile phone.
Both Minister Biti and Dr Gono have in the recent past expressed strong reservations over "usurious" lending rates, bank charges and commissions banks levy clients yet they offered negligible interest on deposits. Expectations are that the fiscal and monetary authorities will enforce the planned measures through amendments to the Banking Act next year.
Announcing the 2013 Budget Minister Biti also lamented a situation where banks made more than 40 percent of their income from fees and commissions instead of their core business of lending.
However, sources said, BAZ has been lobbying for moderation of some of the directives that Minister Biti plans to introduce next year.
Banking institutions have often defended their actions arguing they were only following the macro-economic fundamentals of the economy.
After a decade of economic instability banks and most other corporates have found it difficult to gain access to affordable lines of credit.
But this spawned a vicious lending rate regime for the little funding banks could mobilise, with lending rates as high as 30 percent per year.

Zimbabwe threatens to prosecute firms flouting ownership law

HARARE — Zimbabwe warned on Wednesday that foreign companies that fail to cede majority stakes to locals as required by a controversial law risk being prosecuted.
The Minister of Indigenisation and Economic Empowerment Saviour Kasukuwere said some businesses had ignored the law and reminded them to "realise the folly of what they are doing."
"I wish to make it clear that the law will take its course in such matters of deliberate disregard of the rule of law," said Kasukuwere during an economic conference in the capital Harare, attended by President Robert Mugabe.
Kasukuwere said anyone who "does not want to comply with the laws of this country or associate themselves with the aspirations of black Zimbabweans has no place in the affairs of our country."
The two-year-old law forces foreign companies to cede 51 percent of their shares to indigenous Zimbabweans.
"This programme is irreplacable as it is founded on the ideals of our independence struggle."
Several companies like Zimplats, the Zimbabwean unit of South African's Impala Platinum, have submitted their plans to hand over majority shares to local people.
The programme is at the centre of a dispute between Mugabe and Prime Minister Morgan Tsvangirai, who formed a coalition government three years ago after disputed polls.
Tsvangirai has said the law will drive away foreign investment, as the country is recovering from a decade-long economic collapse.

Thursday, November 1, 2012

IMF and Zimbabwe

Last night, The Executive Board of the International Monetary Fund (IMF) released a
press statement on its relaxation of restrictions on technical assistance to Zimbabwe
which opens the way for future staff monitored programs. Below we provide extracts
from the press statement.
The restrictions on technical assistance were a result of Zimbabwe’s protracted
financial arrears to the Poverty Reduction and Growth Trust. In relaxing the
restrictions, the IMF took into account a significant improvement in Zimbabwe’s
cooperation on economic policies, the authorities’ efforts and renewed commitment to
address its arrears problems, and Zimbabwe's severe capacity constraints in the IMF’s
core areas of expertise that represent a major risk to the implementation of the
government’s macroeconomic stabilisation program. The relaxation of the restrictions
opens the way for Zimbabwe to agree on an IMF staff monitored economic program.
Such a staff-monitored program (SMP) would mark another significant step toward
normalisation of Zimbabwe’s relations with the IMF.
SMPs are informal agreements with IMF staff whereby IMF staff provide advice to the
authorities on the design of their economic program, and monitor the implementation
of such a program. SMPs do not entail endorsement by the IMF Executive Board nor
financial assistance.
Effectively the IMF will resume technical assistance in certain new areas to support
Zimbabwe’s formulation and implementation of a comprehensive adjustment and
structural reform program that can be monitored by the staff. The current and new
areas for IMF technical assistance to Zimbabwe are in the fields of:
i) tax policy and administration;
ii) public financial management and expenditure policy;
iii) financial sector reform;
iv) central bank reform;
v) monetary and exchange policies;
vi) macroeconomic statistics;
vii) anti-money laundering and combating the financing of terrorism; and
viii)any other area that would support the formulation and implementation of a
comprehensive adjustment and reform program that can be monitored by the
This is a positive development for Zimbabwe especially in light of the recent
moderation in the economic recovery. The country needs certainty regarding policy
implementation and further reforms for the growth rates to accelerate again. The
country remains vulnerable to external shocks as the useable international reserves
remain very low at approximately 0.3 months of imports. The Minister of Finance is
due to present his 2013 National Budget on Thursday 15 November 2012.