Staff Reporter.
INTERFIN Securities has warned that some banks may fail to meet proposed international capitalisation standards as the Reserve Bank of Zimbabwe steps up its efforts to restore confidence in the fragile banking sector.
Last year the central bank said it would introduce Basel II capitalisation requirements, an international standard for banking regulators, which controls how much capital banks must put aside to guard against financial and operational risks.
Central bank chief, Gideon Gono announced the new framework in his Mid-Year Monetary Policy Review statement last year, where the Modified Standardised Approach (MSA) for managing credit risk, and Alternative Standardised Approach (ASA) for managing operational risk were proposed for adoption.
The proposed MSA approach requires banking institutions to develop or revise their internal rating systems, if necessary, to ensure reliable and accurate mapping to the new Supervisory Rating System (SRS).
The central bank compelled all banks to submit documentation that outlines the development of the rating systems and derivation of the mapping procedure to the SRS by September 30, 2011. The Reserve Bank envisaged to roll out the revised framework this month with a view to finalise it by January 2013.
These new benchmarks are an addition to the varying prescribed minimum capital requirements introduced by the bank in 2009.
"With regards the banking sector, we expect deposits to remain below US$4 billion in 2012 due to limited foreign bank flows. The participation of multi-lateral lending institutions is likely to be limited as the global banking sector comes under increased regulation," reads a 2012 outlook economic report prepared by the research firm.
"The effect of Basel ll regulations on the local front is likely to result in reduced credit supply as banks will be striving to meet the increased capital requirements. This is likely to further drive down the prospects of the banking sector locally, leading to a depressed performance. Deposits are likely to remain transitory, further reducing credit supply leading to high lending rates which will again prove to be negative for economic growth," reads the report.
"The interbank market is likely to remain constrained, in our view, and if the proposed US$100 million is to be availed, it may not yield the intended results. The increased capital requirements as a result of Base ll may lead to a number of banking institutions failing to meet capital requirements. The possible high lending rates are likely to lead to a rise in default risks."
Gono has however, allayed fears within the financial services sector, saying total capitalisation of the sector had improved.
"As at December 31, 2011, 20 out of 25 operating banking institutions were in compliance with the prescribed minimum capital requirements.
"The total industry capitalisation has grown from US$382,21 million in December 2009 to US$509,71 million as at end of December 2011," said Gono last week at the Confederation of Zimbabwe Industries business conference held in the capital.
"In January 2011, the Reserve Bank issued the Technical Guidance on the Implementation of the Revised Capital Adequacy Framework in Zimbabwe to the market in order to give focus to the planning of Basel II implementation by banking institutions. During 2012, all banks will be required to perform three Basel II pilot runs."
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