EDITORIAL
Finance Minister Patrick Chinamasa last week unveiled a US$100 million facility to resuscitate the interbank market, which went away with dollarisation of Zimbabwe’s economy in 2009 when the country ditched its own worthless currency.
The facility was made possible by assistance from Afreximbank, which had been engaged by government to help develop a solution that would ensure convergence and re-integration of the banking system through restoration of a healthy interbank market.
This is a very important move that was long overdue as this will allow the Reserve Bank of Zimbabwe (RBZ) to play its crucial role of lender of last resort. Chinamasa last week highlighted that the primary objective of the facility would be to unlock deposits held by surplus banks and make them available for those banks with short term liquidity challenges.
By so doing, he said, the liquidity lying idle will be used to stimulate the interbank market. This is expected to boost the circulation of the money in the system, and alleviate the liquidity challenges in order to promote the proper functioning of the economy and the stability of the financial markets.
We fully support the government’s intervention to revive the interbank facility but believe US$100 million is not enough to meaningfully support a vibrant interbank market between banks. Nevertheless, every process has its first step and Chinamasa’s initiative should therefore be applauded.
But we should not be ignorant of the facts that led to banks avoiding interbank lending among themselves. These pertain to the market liquidity risks associated with interbank lending involving weak players that are apparently on the verge of collapse. While the RBZ would ameliorate this risk by injecting funds into the interbank market, the challenge is now to create necessary instruments to cover the banks with surplus cash so that there can lend to other banks experiencing deficits without risking their own depositors’ funds.
The RBZ would need to come up with acceptable securities to be pledged by the deficit banking institutions during interbank trading. Our fear is that some of the struggling banks might lack even the cash to buy these acceptable securities without endangering their liquidity positions further.
Already, Chinamasa has said the facility, which would be short term, shall be available “only to solvent or healthy banks not facing fundamental problems of solvency or viability”.
Afreximbank has already pledged to issue “own name securities” to participating banks in exchange for collateral or securities from the banks acceptable to Afreximbank. Surely, some banking institutions would certainly not afford this and so the interbank market will become an exclusive club for the big players.