The Sunday Mail
ANALYSTS forecast that the cost of borrowing is likely to rise in the short to medium term as giant financial group CBZ Holdings Ltd seeks to recoup deposits lost after Government moved its exchequer account to the central bank.
CBZ Holdings Ltd has since 2009 been Government’s banker after the Reserve Bank of Zimbabwe (RBZ) became undercapitalised and lost its lender of last resort role.
However, Government closed the CBZ account in March, and after assuming the RBZ’s US$1,4 billion debt, transferred its deposits back to the apex bank, which had also received a cash injection of US$100 million to oil the interbank market.
Harare brokerage firm ABC Stockbrokers says CBZ, which holds a 25 percent share of the market, will likely lose its competitive edge of amassing cheap Government deposits. This will force the group to offer higher interest rates, as a strategy to attracting new deposits.
“There will be increased competition of deposits as CBZ is now under pressure to ‘replenish’ lost deposits,” ABC Stockbrokers said in its commentary on the latest mid-term Monetary Policy Review.
Rates on short-term deposits of tenor 90 days are currently being quoted around 10 percent and 7 percent for 30-day investments. Seven-day deposits are unavailable.
Government’s deposits with CBZ accounted for 4 percent of the group’s US$1,45 billion total deposits during the half year to June 2014, up from 2 percent at the end of last year. The stockbrokers cautioned against keeping Government’s deposits at the central bank dormant.
“There is need to ensure that Government deposits are not quarantined at the RBZ and they have to be deployed for the benefit of the broader economy. Otherwise, this will be tantamount to withdrawal of liquidity in the banking system,” said ABC Stockbrokers.
Earlier last month, however, CBZ Holdings Ltd group chief executive Mr Never Nyemudzo told an analysts’ briefing in Harare that the company remained on solid ground, even after losing the Government’s account. He said then: “What’s important is the experience we got from dealing with Government’s trading partners.
“The process has now been completed and we are now operating like any other bank on Government basis, that of being an agent.”
The liquidity situation in Zimbabwe’s financial industry generally remains squeezed, but the sector remains sound.
At least 14 of the 19 banks in operation have met the US$25 million minimum capital requirements, central bank governor Dr John Mangudya said in his maiden Monetary Policy Review statement on August 25.
However, risks to stability are coming from the high level of non-performing loans (NPLs), which have escalated to 18,5 percent or US$705 million trapped in bad debts. The internationally accepted benchmark for NPLs is 5 percent. Some banks have, however, been implementing strategies to curb continued growth of bad loans. The measures include revision of credit policies, selective restructuring, slowdown in new lending, aggressive loan collection, write-offs and litigations.
ABC Stockbrokers believes the plans by the central bank to establish a Credit Reference Bureau will keep NPLs in check, and possibly stabilise interest rates as well as improve liquidity.
“Whilst the bureau will assist banks in managing their credit risk, it will also allow borrowers to capitalise on their good credit histories,” it said.
“(The bureau) provides a platform to share credit history of borrowers thereby contribute to sound credit risk management practice. It is hoped that it will enhance ‘reputational collateral’ of borrowers, leading to reduced risk premium – thereby contributing to a reduction in interest rates. It is part of overall efforts to reduce NPLs and clean up bank’s balance sheet.”
