eBusiness Weekly
Tapiwanashe Mangwiro
Senior Business Reporter
Banks in Zimbabwe are looking at raising capital in order to meet the Reserve Bank of Zimbabwe (RBZ) stipulated minimum capital requirement by December 31, 2021.
Capital requirements are standardised regulations put in place for banks and other depository institutions to determine how much liquid capital must be held against a prescribed value of their assets.
Under the current regulations, all banks must have a minimum capital equivalent to US$30 million.
As per the new regulation, the Central Bank set minimum capital requirements which are the equivalent of US$30 million for large commercial and foreign banks (tier I), US$20 million for Commercial banks, Merchant banks, Building societies, Development banks, Finance & Discount houses (tier II), US$5 million for Deposit-taking Microfinance banks (tier III) and Credit Only Microfinance Institutions US$25 000, by December 31, 2020.
Cognisant of the prevailing economic challenges as well in 2020, due to the negative impact of Covid-19 pandemic outbreak, the RBZ extended the deadline for bank’s compliance with the requirement for meeting the minimum capital levels by one
year from December 2020 to December 31, 2021.
In addition, banking institutions were required to continue to assess the adequacy of their economic capital levels against their risk profiles.
In fact, particular attention was to be given to credit risk, operational risk and business risk, which had since been significantly increased by the Covid-19 pandemic outbreak.
The dynamic nature of the financial landscape, amid increasing economic uncertainties had prompted monetary authorities to apply US dollar linked minimum capital requirements for banks and other financial entities, in an effort to ensure banks are adequately capitalised at all times.
During the first half of 2021, the banking sector posted a combined $15,1 billion net profit, after riding out headwinds posed by the deadly Covid-19 pandemic as the sector had posted $13,5 billion during the same period in 2020, RBZ governor John Mangudya said during his mid-term monetary policy statement in August.
The sector’s net capital base grew from $29,5 billion during the first half of 2021 to $73 billion and remained adequately capitalised, with aggregate core capital of $57,54 billion as at June 30, 2021 according to statistics. This means the sector’s net capital grew 8,09 percent, from $53,18 billion at the end of last year.
The banking sector average capital adequacy and tier one ratios of 35,32 percent and 25,05 percent respectively, were above the regulatory minimum of 12 percent and 8 percent, respectively.
Bank’s aggregate deposits amounted to $304,95 billion, which translated to 51 percent in local currency and 49 percent in foreign currency as at June 30, 2021, which represented a 49,39 percent increase from $204,13 billion at the end of 2020.
“Most banks are on course to meet the minimum capital requirements with a few who might miss the target but they submitted good plans with the RBZ,” economist Tinevimbo Shava said.
“These banks have been cautious in lending as seen by the ratio of loans to deposits of 48 percent, which means they are aware that they need to reduce NPLs in order to stay on course,” he added.
During the recent reporting period, all banks said they were confident and on course to meet their minimum capital requirement deadline as they had submitted concrete plans to the RBZ.
According to the RBZ, “The Bank
established that banking institutions are making significant progress towards
meeting the new minimum capital requirements, which are effective from December 31, 2021.”
“The strategies being pursued by banking institutions to comply with the new
minimum capital requirements are largely based on organic growth and capital
injection by the shareholders,” the bank added.
