Monetary Policy Statement Highlights [DOWNLOAD full statement]

THE Reserve Bank of Zimbabwe (RBZ) today unveiled a raft of policy measures in the mid-term monetary policy statement that are designed to reconfigure the economy from stability to growth.

Monetary authorities believe that the local economy has to grow  “competitively and sustainably” at 5 percent per annum.

Much progress has been recorded during the past 12 months in stabilising the local financial markets.

All the 18 banks that are currently operating are now compliant to the minimum capital requirements, while NPLs have since retreated from a peak of 20,45 percent to 14,52 percent as at June 30, 2015.

However, the central bank also urged all banking institutions to work towards NPLs of less than 10 percent by June 30, 2016 and 5 percent by December 31, 2016.

But the agreement between the RBZ and the Bankers Association of Zimbabwe (BAZ) on a regime of interest rates that will be aligned according to the credit rating of borrowers will perhaps have a far-reaching impact in a sector where interest rates are largely considered punitive.

Similarly, the use of Zamco (Zimbabwe Asset Management Company) – a special purpose vehicle created by the RBZ to acquire toxic debts from bank balance sheets – to restructure and reschedule debts of distressed companies that have been the potential to recover will likely help conjure positive sentiments in industry.

Debts worth US$58 million of four distressed companies are presently being restructured before the end of the third quarter.

 DOWNLOAD THE DOCUMENT: Monetary Policy Statement – July 2015

MAJOR HIGHLIGHTS OF MPS

Progress to date

• Five banks have invested in Aftrades, an inter-bank facility that is meant to improve liquidity in the financial services sector. Aftrades amounting to US$120 million have since been issued to date. The final maturity of the instruments in February 13, 2017.

About three banks have so far borrowed US$84 million from the facility.

• RBZ has bought bonds coins worth $10 million so far. They have helped in correcting prices and affording convenience to the transacting public

• Zamco has since purchased US$154 million loans and restructured them. The IMF provided technical assistance to Zamco during the first half 2015. Zamco will also help in resuscitating distressed companies that can potentially be viable through debt relief and restructuring measures.

Since inception, Zamco has been focusing on the acquisition of the top 100 NPLs across the entire banking sector during the period under review.

The top 100 NPLs amounted to $188 million, which accounted for 77 percent of the total portfolio that had been offered for sale in the first phase.

• Through the demonisation, a process that is expected to gobble US$20 million, only US$301 000 has been paid to walk-in customers so far.

The process is scheduled to run up to 30 September 2015.

Export earnings

Exports in the January to June period rose 0,4 percent to $1,23 billion from $1,22 billion a year ago, while imports galloped 2,3 percent to $3,1 billion from US$2,99 billion.

Capital account has, however, continued to record surpluses because of the private sector has been able to attract both short and long-term credit lines.

Diaspora and international remittances stood at US$933 million as at June 30, 2015.

EXPORT PROMOTION

Export earnings account for over 61 percent of the country’s liquidity.

Measures that have been adopted by the RBZ to promote export include:

• Export finance scheme – for pre- and post shipment export financing. Through the facility commercial banks will extend credit for raw materials or finished goods upon the presentation of confirmed export orders. The banks will then receive re-financing under the inter-bank facility. Post shipment finance is supposed to provide eliminate the waiting period between shipping of goods and receipt of payment.

DOWNLOAD THE DOCUMENT: Monetary Policy Statement – July 2015

• RBZ says overreliance on tobacco revenues is dangerous. RBZ urging diversification of revenue streams through horticulture. RBZ will resultantly work with AMA (Agricultural Marketing Authority), HPC (Horticultural Promotion Corporation) to establish a facility aimed at targeted horticulture exports.

• RBZ has mobilised development finance worth $210 million from PTA Bank, Afreximbank and the Development Bank of Belarus.

• Harmonisation of export permits for the export of furniture, wood products, and some non-essential agricultural products.

Also in order to mobilise Diaspora remittances, RBZ , through the Authorised Dealer with Limited Authority (ADLA), managed to register more than 30 MTAs.

“Reserve Bank is currently working on a centralised payment gateway system for the Money Transfer Agencies to facilitate formalisation of remittance inflows and effective accounting and monitoring of Diaspora remittance inflows.”

• Foreign investors are now allowed to 100 percent of their projects using debt. Before foreign investors were allowed to inject debt that was equal to equity.

Health of the banking sector

Of the 18 banks that are currently operational – 13 commercial banks, three building societies, one merchant bank, one savings bank – all are compliant with minimum capital requirements.

Core capital of the banks rose 19 percent to $899 million from $753,3 million a year earlier.

Aggregate net profit rose to $43 million from $26,5 million a year earlier. 14 out of the 18 banks were profitable.

In May Government capitalised Agribank to the tune of $30 million and ZB Bank $20 million. The latter is in the process of being merged to ZB Building Society.

Banking sector deposits rose 14,2 percent to $5,6 billion from $4,9 billion a year ago.

Loans and advances were $4 billion, from $3,8 billion, translated to a loan-to-deposit ratio of 71,4 percent.

Crucially, 55,49 of total deposits were demand or transitory deposits, meaning that they are short-term in nature.

Individuals received the bulk of the loans at 25,6 percent, followed by services 18,7 percent, agriculture 16 percent, manufacturing 10,8 percent.

DOWNLOAD THE DOCUMENT: Monetary Policy Statement – July 2015

Mining, tellingly, is at 5,24 percent.

Non-performing loans which peaked at 20,45 percent slowed to 14,52 percent as at June 30, 2015. Excluding Tetrad the ratio would be 13,15 percent.

All banking institutions are expected to work towards a target NPL ratio of less than 10 percent by 30 June 2016 and 5 percent by 31 December 2016.

The RBZ has also issued two licences to the new category of deposit-taking microfinance institutions – Africa Century and Getbucks Financial Services (used to operate as a credit-only microfinance)

BAZ and RBZ agree interest rate guidelines for clients with low credit risk, moderate credit risk and high credit risk.

Lending rates are effective from October 1, 2015

Micro Finance Institutions

MicroKing, a subsidiary of AfrAsia Bank Zimbabwe, which had its licence cancelled, has since found a suitor in the form of Microcred and AfricInvest, a consortium of investors who are earmarked to inject US$22 million into the business.

All the workers will be retained.

MFIs loaned out $163,5 million as at June 30, 2015 from $157 million in December.

Interest rates have progressively improved.

But the RBZ continues to receive complaints from members of the public relating to inadequate disclosure of terms and conditions of loans granted by some MFIs and high interest rates and charges.

Gold production

Country produced 8,1 tonnes of gold in the six months to June. 16 tonnes forecasted by year end.

South Africa and Ghana produce most of the continents gold.

RBZ is in the process of mechanising small-scale gold producers, who contribute 37 of gold deliveries, and an estimated US$5 million was since been extended to small producers through Fidelity Printers and Refiners.

Proposed measures to improve gold production:

• Rationalisation of charges levied to producers. These include Rural District levies, Mining Licence and Ground Rental fees, EMA Charges and MMCZ and National Parks and Wildlife mining fees;

• Aligning electricity tariffs on gold mining to those obtaining in other sectors like the chrome sector;

• Increase access to long term funding for both small scale and large scale gold producers; and

• Harnessing the potential of small scale and artisanal miners.

 DOWNLOAD THE DOCUMENT: Monetary Policy Statement – July 2015