Banks fail to meet capital requirements

HARARE – Seven banks have failed to comply with the US$12,5 million capital requirements amid calls from experts for the financial institutions to merge operations.

According to the latest financial sector performance report, the seven banks that are failing to comply with the central bank’s capital thresholds comprise small and new players in the financial sector.

However, the report compiled by fiscal authorities has not disclosed names of the banks, citing the need to protect depositor interests.

An economic commentator, Mr Godfrey Dupwa says while the seven banks have not managed to comply with the requirements, it is in the interest of the relevant authorities to take note of financial challenges affecting banks by ordering the struggling institutions to merge operations.

“The only way for them to survive is to merge operations, otherwise it is likely to be a tough act,” Mr Dupwa said.

While the report has noted that the financial sector is mainly dominated by four big banks that are controlling at least 60% of the total deposits, an economist, Mr Brains Muchemwa says the survival of the seven banks hinge on the extension of the capital requirements from June 30 to December 31 this year.

“We are likely to foresee a situation where the deadline will be extended to at least December 31 this year,” Mr Muchemwa said.

Financial institutions around the country are focusing on recapitalising operations after the change from the use of the local currencies to a multiple currency system in February 2009 resulted in banks starting from zero deposit levels to the current US$2 billion.

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Banks credits surge

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Meanwhile, in another developemt, the total credit provision into the economy by banks has significantly increased from US$645 million in 2009 to US$1,4 billion in 2010 on the back of improved performance by the banking sector.

This positive growth in credit provision saw the loan deposit ratio rising to 70% in 2010 up from 50% in 2009, statistics from the Bankers Association of Zimbabwe (BAZ) have shown.

All 15 banks operating in the country recorded deposit growth, with short term deposits, which were pegged at 97,5% of total deposits, dominating total bank deposits.

BAZ noted that the agriculture sector accounts for the single largest share of credit at 22%, while distribution and manufacturing sectors accounted for 20% credit each.

Households received 8% credit, while the mining sector received 7%.

With most banks returning to profit as indicated by the financial results recently released for the year ended December 31 2010, banking institutions are expected to play an even greater role in financial intermediation, which is critical for sustaining economic recovery and growth.

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