Tough terms for interbank

Tough terms for interbank
Published: 18 March 2014
THE collateral required by the Africa Export and Import Bank may sideline many banks willing to participate on the interbank market, banking sources said yesterday.

Afreximbank is the guarantor of the $100 million interbank facility announced by Finance and Economic Development Minister Patrick Chinamasa in 2014 Budget Statement.

Early this month, banks interested in participating were advised to cede their security to Afreximbank upon which they will be given a tradable paper which will be used by banks seeking liquidity to obtain cash from institutions with excess cash.

However, it has emerged that most banks, especially those that need funding, do not have the "eligible assets" to cede to Afreximbank to participate on the interbank market.

Last month, Government and the Afreximbank agreed to introduce the facility and associated instruments to alleviate the liquidity challenges confronting the financial system.

The Reserve Bank of Zimbabwe will provide the infrastructure required for the implementation and administration of the facility. Only solvent banks not facing serious viability problems will be eligible for the facility, according to Afreximbank.

Acceptable collateral includes security for export loans originated by the participating banks secured in prime offshore receivables and for which the delivery has occurred.

Banks holding the CBZ Diaspora bond, Government's Treasury Bills and bond or security issued by grade rated investment entities is also acceptable. Under this category, banks will be able to access 90 percent of the face value of the eligible assets.

In another category, security for export loans originated by participating banks secured but for which the delivery has not occurred is also acceptable and banks will get 80 percent of the face value of eligible assets.

Security against loans that would have been provided to "prime Zimbabwean" companies and domestic loans granted to mid-tier Zimbabwean companies with acceptable collateral such as cash and receivables expected from big companies is also accepted.

Under the category, banks will access 70 percent and 50 percent of the face value of eligible assets. Existing loan books of most banks requiring the facility falls under this category.

This has a bearing on the amount of paper that these banks can meaningfully raise as they will only be able to access 70 percent and 50 percent of the face value of eligible assets.

Bankers Association of Zimbabwe vice president Mr Sam Malaba was quoted in a FinX report saying while the proposed framework for the interbank was workable there were a number of issues that had to be resolved such as the eligible assets for banks to participate.

He said the requirement has left several banks in quandary as the majority holds mortgage paper owing to the current Balance of Payment position which has not been favourable for tradable paper.

"Afreximbank is there to provide trade and as security they need tradable paper and the bulk of banks have mortgage paper but we have been having discussions with the RBZ and Afrexim bank," said Mr Malaba.

He was optimistic that dialogue among the parties would be fruitful to restart the interbank market by the set date. An analysis by the Financial Traders Association said the structure also discriminates against the very banks that need the facility.

"This may end up increasing the costs as the institutions have to go through intermediaries," said FTAZ.

The proposal points out that participating banks will be pre-approved based on financial standing and reports from RBZ.

This selection criterion will not address the problems facing banks in Zimbabwe as it will work towards eliminating those players that may require the liquidity assistance.

There is a likelihood of creating an elite league of banks that may not have required such a paper in the first place as they are the generally sound and liquid banks.

It said the most liquid banks-mainly traditional international banks have previously refused to participate on interbank market even on the back of Treasury Bills.

As such, the success of the paper hinges on the willingness of these banks accepting this form of paper.
- herald
Tags: Interbank,


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