ZIMBABWE’S banks are facing the risk of insolvency after failing to raise adequate capital buffers to absorb potential shocks as several financial institutions found themselves below the minimum capital threshold of US$30m for tier 1 banking institutions and US$20m for building societies by the set deadline of December 31,2021.
The minimum threshold for deposit taking microfinance institutions was pegged at US$5m while that of credit only microfinance institutions was US$25 000.
The capital thresholds are deemed necessary given that Zimbabwe’s banking sector is fragile. The demand for banks to increase their capital levels came after several banks closed a few years ago due to low capital levels and management delinquency, a situation which saw most depositors losing their hard-earned cash.
Since then, depositors’ confidence in the banking sector is low resulting in most banking public keeping their money home.
The required capital base would ensure stability in the banking sector. Apparently, five commercial and building societies – Nedbank Zimbabwe, AFC Commercial Bank, CBZ Building Society, National Building Society and ZB Building Society- were not compliant by the due date.
All the six-deposit taking microfinance and all 28 credit only microfinance institutions were not compliant with the minimum capital requirement.
The embattled financial institutions were granted extensions of up to 12 months to raise capital.
RBZ governor, John Mangudya is, however, confident the banks would be compliant.
“The bank is confident that the remaining institutions will meet the minimum capital requirements by 31 December 2022,” Mangudya said.
He added: “The non-compliant institutions are putting in place re-capitalisation strategies in order to comply with the requirements and to facilitate underwriting of more meaningful business.”
He said the declared capital would be subjected to external audit reviews. The central bank, Mangudya said, will also conduct a capital verification exercise during the year to ascertain the declared capital positions.
The financial institutions that failed to meet the threshold will not be permitted to pay dividends without prior approval of the central bank until such a time they have met the new minimum capital requirement .
They are required to immediately submit to the central bank revised board approved capital plans and quarterly updates on capital raising initiatives.
Profitability in the banking sector in the 12 months to December 31, 2021, increased 427% to ZWL$42.03bn from ZWL$384.77m in 2020.
The increase was largely attributed to improved operational efficiency as reflected by an improvement in the average operational self-sufficiency ratio to 168.63% in 2021 from 111.86% in 2020, according to Mangudya.
The international benchmark is 100%.
Total banking sector loans and advances increased 61% to ZWL$229.94bn at the end of December, largely attributed to the translation of foreign currency denominated loans.
At the end of the year, foreign currency-denominated loans stood at 36.87% of total banking sector loans, an increase from 30.16% reported as at June 30 2021.
Mangudya said the banks continued to support the productive sectors of the economy with loans to the productive sector constituting 76.29% of total loans at the end of December.