Editorial Comment: Unbanked public missing liquidity link
We are on the brink of price deflation and banks urgently need to be capitalised as a counter measure. Placing them into liquidations that only benefit the liquidator in fees at a cost to depositors is not a solution we need right now. This only sends counter signals to the banking public, and further alienates the unbanked market.
The banking sector forms the core of a country’s financial system. A sound financial sector is the backbone of economic development of any nation. This is why the Monetary Policy Statement released by the Reserve Bank of Zimbabwe Governor Dr John Mangudya this week is so critical, not only to economic recovery, but to consolidation of gains and to healing of toxic financial system challenges.
The most important part of the policy is its admission that there are a number of issues to be dealt with, in the financial sector and the economy at large. Such transparency shows a Central Bank chief who has held a soul searching with his team and highlights the importance of introspection without blame-apportioning.
A safe and sound financial system, with a well capitalised central bank, is the pillar that Governments ride on to develop economies. This is so because a central bank plays key roles on behalf of the Government such as banker to Government by raising funds from the market through various instruments, is the lender of last resort to other banks and the custodian of the monetary policy, to set interest rates among many other responsibilities.
The Central Bank should be applauded for the “Back to Basics” approach that corrects certain behaviours unwanted in the sector while taking the financial system in line with international best practices. Some measure of control should therefore be applied. It is with this in mind that something had to be done about the toxic debt sitting on most of our banks balance sheets through the creation of the Zimbabwe Asset Management Company.
After this we then capitalise the banks. In Nigeria they created AMCON to warehouse bank loans by establishing a central resolution vehicle funded by the banking industry as a more equitable (and effective) solution than bailing out banks with public funds.
Zimbabwe’s situation, however, is worsened by the limited policy options of Government and the central bank, owing to limited foreign reserves and a lack of domestic currency.
Rebuilding confidence in the banking sector is critical to the country especially where billions of dollars are said to be circulating outside the formal financial system. How the Central Bank deals with problems in the sector will help heal these ills. This will help the public regain confidence in the sector and help the financial system to tap into the unbanked funds.
But the RBZ should do more to attract the unbanked funds into the financial system. This is the time some measures should be taken to incentivise the banking public so that we attract the funds circulating outside the system.
Banks must also play ball and consider reducing the cost of banking. Banks are charging punitive fees for transactions and this is alienating the financial system from the public.
This is why mobile banking provided by mobile phone companies is attracting good business. We applaud the promotion of dialogue between the Central Bank and the Bankers Association of Zimbabwe (BAZ). Dialogue helps promote transparency and the benefits that accrue from that will cascade into the larger economy.
However, this dialogue should be based on openness, constructive debate and not a chorus of admirers. We trust that our financial sector leaders will provide sound advice to the Governor and vice versa. They must show that they have the country at heart and help promote development from where they will draw more profits.
A successful banking public means more business for bankers and, therefore, a better return on investment. The Monetary Policy talks of measures to support productive sectors such as gold production.
Zimbabwe has so much gold which, if mopped, could provide the basis for economic development. Despite the vagaries of international mineral prices, Zimbabwe could benefit if such sectors are promoted.
However, gold producers, and indeed other productive sector players should not come up with initiatives to help their business grow instead of waiting on the Government.
The maximum cap of US$5 000 to be taken out of the country is plausible but only if we have mechanism to monitor cash movements across borders.
How tight are our border controls and will we not subject Zimbabweans to abuse by some scrupulous officers taking away bribes to allow more money out? The measures put in place to monitor this must not end up enriching a few officers through corruption. We must be tight.