Buoyant banks expect to surpass capital buffer target

LIVINGSTONE MARUFU

Local lenders have grown increasingly buoyant to surpass the US$30m or ZWL$ equivalent capital threshold which banks should comply with to attain top tier status by December 31, 2021, Business Times can report.

Analysts said the set threshold would allow local banks to absorb shocks and militate against the risk of insolvency.

Some banks have already surpassed the US$30m or ZWL$ equivalent, with six months before the capitalisation deadline.

The capital position (Tier 1 and 2) for CBZ stood at ZWL$8,877,246 or US$104.9m and NMBZ at ZWL$4.1bn or US$48m using an auction rate of ZWL$85:US$1 have already surpassed the set minimum capital threshold.

FBC Holdings group CEO, John Mushayavanhu, said the group has a detailed capitalisation plan in place to ensure full compliance and is confident FBC Bank and FBC Building Society would meet the set threshold.

“These subsidiaries are expected to self-capitalise through normal trading and/ or merging the two institutions by the regulated deadline. The Insurance and Pension Commission (IPEC) also reviewed minimum capital thresholds with reinsurance companies expected to have a minimum capital of ZWL$150 million and composite primary insurance companies ZWL$112.5m,” Mushayavanhu said.

First Capital Bank also expects that the US$30m capital requirement will be achieved by June 30, 2021, if the current level of performance together with exchange rate stability is sustained.

ZB Financial Holdings (ZBFH) company secretary, Tinashe Masiiwa, said the expected merger of ZBFH banking units -ZB Bank Limited and ZB Building Society – by the end of this year, will ensure that the bank reaches the minimum capital requirement of US$30m by December 31, 2021.

 “The group is confident of meeting the Tier1 bank requirement for its banking operations, prescribed by the Reserve Bank of Zimbabwe (RBZ) as the ZWL equivalent of US$30m, effective from December 31, 2021.

“The merger of the bank and building society is expected before the end of the year and is a key part of the capital management plan,” Masiiwa said.

In his Monetary Policy Statement, RBZ governor John Mangudya said as at December 31, 2020, total banking sector core capital of ZW$40.85bn, reflected an increase of 94.08%, from ZW$20.99bn as at June 30, 2020.

The growth was mainly attributed to growth in retained earnings, bolstered by revaluation gains from foreign exchange denominated assets and investment properties.

Capital positions remain strong with the banking sector average capital adequacy and tier 1 ratios of 34.6% and 22.7% as at December 31 2020, were above the regulatory minimum of 12% and 8%, respectively.

All banking institutions complied with the minimum regulatory capital adequacy and tier 1 ratios, Mangudya said.

The monetary boss said following the extension of the deadline for banking institutions to comply with the new minimum capital levels effective December 2021, all banking institutions submitted updates of their capitalisation plans as at December 31 2020.

Banking institutions, he said, had registered significant progress towards meeting the new capital requirements.

CBZ chairman, Marc Holtzman, said the RBZ should include the adoption of strong digital usage especially during the Covid-19 era.

“The indexation of minimum capital requirements to the US dollar is expected to strengthen those institutions that would have managed to comply. However, the regulatory landscape would also need to evolve with the rapid adoption of non-traditional systems and solutions such as digital transactions, cloud computing and open banking,” Holtzman said.

Initially, the deadline for banks to meet the required threshold was December 31, 2020.

But, taking cognisance of the economic challenges as well as the negative impact of Covid-19, the RBZ extended the deadline for banks’ compliance with the requirement for meeting the minimum capital requirement levels by one year to December 31, 2021.

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 due to low capital levels, a situation which saw most depositors losing their hard-earned cash.

Since then, depositors’ confidence in the banking sector is low resulting in the most banking public keeping their money at home.

Mangudya is of the view that a US$30m or equivalent capital base would ensure long-term stability of the banking sector.