MONETARY POLICY STATEMENT


ISSUED
IN TERMS OF THE RESERVE BANK OF ZIMBABWE ACT
CHAPTER 22:15, SECTION 46

BY
DR. G. GONO
GOVERNOR

RESERVE BANK OF ZIMBABWE

31 JANUARY 2013

Table of Contents


8.
8.
9.

Figures

Tables

1.
INTRODUCTION AND BACKGROUND

1.1 We meet once again in the context of this Monetary Policy
Statement which is issued in terms of Section 46 of the Reserve
Bank Act (Chapter 22:15), and is presented against the
background of a slowdown in economic activity, not just in
Zimbabwe but the world over.

1.2 Distinguished colleagues, the deterioration in global economic
conditions coupled with constraints in the domestic economy,
notably the negative effects of sanctions, adverse weather
conditions and underlying liquidity shortages imposed constraints
on the growth of the Zimbabwean economy.

1.3 As a result of these adverse developments, significant steam has
been taken off the economic growth momentum attained between
2009 and 2011 and all signs at hand point to a very difficult 2013 if
we continue to operate on a “business as usual” mode..

1.4 The emerging risks are heavily inclined towards the downside,
thereby significantly dimming the country’s economic growth
prospects. The situation has further been compounded by

perennial lingering challenges which have remained deepseated in the economy over the past decade or so.
Lack of Progress in Resolving Economic Challenges

1.5 Most of you will recall participating in the shaping up of my
maiden Monetary Policy Statement issued in December 2003.
In that statement, I outlined the economic challenges that we
saw as affecting sustained growth and prospects of the
Zimbabwean economy at that time (please refer to Appendix 1)

1.6 It is instructive that these challenges have not changed much as
at 1 January 2013 except in the area of politics where the
country now enjoys greater peace and tranquility than then, a
product of the Inclusive Government of the last 4 years.
Admittedly, lack of progress in addressing the bulk of these
underlying challenges, is visible.

1.7 Notwithstanding, these attendant challenges, great scope still exist to
leverage on the same strengths and advantages which I pointed out
in that maiden Monetary Policy Statement in December 2003:

1.8 The strengths and positives are outlined in Appendix 2 still remain
valid today and we should take advantage of them in order to
move our economy to emerging market status.

1.9 Turning to the present and, on the external sector front, the Eurozone sovereign debt crisis that has plunged the global economy
into a recession has also resulted in the dwindling of trade
opportunities. These negative developments have precipitated the
volatility of international commodity prices. Consequently, the
global economic slow-down has magnified the country’s external
sector vulnerabilities through declining export prices, particularly
for some primary commodities.

1.10 These adverse commodity price developments combined with
limited access to offshore lines of credit, compound the country’s
external sector position with serious ramification on the
vulnerability of banks.

1.11 For the upteenth time, let me state the usual and dare I say major
sources of liquidity for us are:

a. Exports;
b. Diaspora inflows;
c. Foreign direct investment;

d. Lines of credit; and
e. Portofolio inflows.

1.12 The stability of the country’s banking sector has, thus remained
susceptible to adverse liquidity conditions that are inextricably
linked to external sector developments, particularly under the
multiple currency system. Most importantly, the cost of capital has
remained high as evidenced by high lending rates as well as high
bank charges.

1.13 If follows, therefore, ladies and gentleman that any internal attack
on any of the five major sources of liquidity will continue to
impose considerable adverse effects on the recovery of the
economy hence the need for stakeholders to take heed when we
speak from a point of knowledge.

1.14 High lending rates have also discouraged borrowing by the key
productive sectors of the economy, while high bank charges have
militated against initiatives to meaningfully mobilize savings. It is
against this background that the intermediary role played by the
financial sector has been severely undermined, thereby, further
constraining the country’s economic growth prospects.

2.
It is further against this background that the attainment of the
overarching objective of maintaining financial sector stability in a
manner that is promotive of sustained economic growth and
development remain central to pronouncements embodied in this
Monetary Policy Statement.
3.
INTERNATIONAL ECONOMIC DEVELOPMENTS

3.1 In the aftermath of the negative repercussions of the slow-down in
global economic activity, precipitated by the Euro-zone sovereign
debt crisis, relative stability has been restored in international
financial markets. This largely reflects the impact of policy
measures enunciated by major central banks and governments
particularly in the Euro-area including what they refer to as
quantitative easing, company bail outs and subsidies.

3.2 Notwithstanding these positive strides, global economic recovery
remains weak and fragile on the back of lingering policy
uncertainty, coupled with on-going economic and fiscal adjustment
initiatives in advanced countries, and the unwinding of credit
booms in emerging economies.

3.3 Despite extra-ordinary ameliorative measures geared at combating
the recession that has gripped advanced economies, such as

quantitative easing, company bailouts, (BACOSSI operations) and
company subsidies, re-acceleration of economic activity in
advanced economies still remains elusive. This reflects the adverse
effects of lingering uncertainty about the course of policy coupled
with tight financial conditions, and ongoing fiscal consolidation.

3.4 The aversion of the destabilizing effects of the fiscal cliff in the US
is expected to provide marginal growth impetus to the US
economy and global economic activity at large. The US fiscal cliff
entailed the anticipated sharp decline in the budget deficit that
could have occurred in January 2013 due to increased taxes and
spending cuts as required by the US Budget Control Act of 2011.

3.5 Admittedly, such a move, however, could have resulted in a deeper
recession in the US economy than is the case now, with dampening
effects on global economic recovery.

3.6 Against this background, economic activity in advanced economies
is projected to marginally grow from 1.3% in 2012 to 1.5% in
2013.

3.7 In turn, the negative spill-over effects of subdued activity in
advanced economies coupled with deteriorating macroeconomic
conditions, depressed economic activity in emerging market

economies in 2012. Accordingly, growth in global economic
activity is projected to modestly improve from 3.3% in 2012 to
3.6% in 2013 as shown in Figure 1 below.

Figure 1: Global Economic Growth (%)

Source: World Economic Outlook, October 2012

3.8 Subdued import demand from both advanced and emerging market
economies, imposed constraints on economic activity in
developing countries in the Sub-Saharan African region as shown
in Figure 2 below.

Figure 2: Economic Growth (China, India & Sub-Saharan Africa)

Source: World Economic Outlook, October 2012

3.9 The decline in world trade growth has also manifested itself
through the volatility in international commodity prices for
platinum, nickel and copper, among others. This notwithstanding,
widespread diversification of exports cushioned some countries in
Sub-Saharan Africa from the negative effects of weak demand. In
consequence, economic growth in Sub-Saharan Africa is projected
to expand from 5% in 2012 to 5.7% in 2013.

Commodity Price Developments

3.10
Commodity prices increased slightly in early 2012 on the back
of recovering market confidence as well as better-than expected

global growth in the first quarter. Nonetheless, the renewed
setbacks to global recovery in the second quarter of 2012,
particularly in a number of major emerging market economies,
notably China and India, affected commodity prices through
contraction in current and prospective demand as well as the cost
of shipping inventories.

3.11 Commodity prices for Zimbabwe’s major mineral export
commodities, notably gold and platinum performed relatively well
during 2012. This notwithstanding, nickel and copper prices
remained largely subdued in 2012 as shown in Table 1 below.

Table 1: International Commodity Prices 2012

Jan
March
June
Sept
Dec
Gold (US$/ounce)


Nickel (US$/tonne)


Copper
(US$/tonne)


Platinum
(US$/ounce)


Oil (US$/barrel)

Source: BBC and KITCO

3.12 On the other hand, gold prices firmed by 2.2% from an average of
US$1,656/oz in January 2012, to an average of US$1,696/oz in
December 2012. Gold prices continue to benefit from the metal’s
safe haven status, particularly in view of global economic
turbulences that characterized the greater part of 2012.

3.13 Against the backdrop of buoyant gold prices, gold deliveries to
Fidelity Printers and Refiners in Zimbabwe, improved by 15.7%
from 11,645.26 kgs in 2011 to 13,474.31 kgs in 2012 as shown in
Figure 3 below.

Figure 3: Gold Deliveries 2011 and 2012

Source: Fidelity Printers and Refiners

3.14 This notwithstanding, gold deliveries in 2012, fell short of the
initial target of 15 tonnes.

3.15 Similarly, platinum prices firmed markedly by 7% from an average
of US$1,507/oz in January 2012, to US$1,613/oz in December
2012. The temporary firming of platinum prices in 2012 is also
attributed to supply disruptions in South Africa, on account of the
industrial action that affected the country’s platinum mining
industry.

3.16 Conversely, nickel and copper prices remained subdued in 2012,
on the back of accumulated inventories coupled with weak demand
by China. Global commodity markets were adversely affected by
the faltering economic growth and weakening import demand in
China, which absorbs over 40% of the world’s base metal
consumption.

3.17
On the other hand, oil prices which peaked at US$126/barrel in
March 2010, due to geopolitical tensions in the Middle East,
retreated to US$109/barrel in the third quarter of 2012.

3.18 Oil prices declined in response to depressed demand in the wake of
the global economic slow-down, rising supply, especially in non-

OPEC countries and the accumulation of commercial stocks in
OECD countries.
4.
BALANCE OF PAYMENTS DEVELOPMENTS

4.1 Reflecting the negative repercussions of commodity price
volatility, the Zimbabwe’s external sector position has remained
under considerable pressure. Moreover, the growing import
dependence that the country has continued to experience on the
back of persistent supply gaps occasioned by industrial undercapacity utilization, has undermined external sector performance.

4.2 In contrast, the recovery in exports has remained anemic reflecting
limited foreign direct investment inflows as well as volatile
international commodity prices for nickel, platinum, copper, and
diamonds among others.

4.3 It is against this background that merchandise trade remained
heavily inclined towards imports of finished consumer goods and
vehicles. In consequence, exports realized over the period January
to December 2012 amounted to US$3,884 million, which
compares unfavourably with imports of US$7,484 million1 realized
over the comparable period as shown in Figure 4 below.

1 Import statistics as reported by Zimstat include freight and insurance.

Figure 4: Imports and Exports 2012 (US$M)


Source: Zimstat

4.4 This negative development has culminated in the incurrence of a
substantial trade deficit amounting to US$3,600 million in 2012 as
shown in Figure 4 above.

4.5 The excessive reliance on imports, particularly of a finished nature,
against subdued export performance, has resulted in the incurrence
of unsustainably high current account deficits as shown in Figure 5
below.

Figure 5: Trade and Current Account Balances (1990-2012)
‐0.35
‐0.3
‐0.25
‐0.2
‐0.15
‐0.1
‐0.05

0.05
0.1

Current Account
Trade Balance

Source: Reserve Bank of Zimbabwe and Zimstat

Financing of Current Account Deficit

4.6 Financing of the current account deficit has remained a challenge,
as the capital inflows are inadequate to finance the burgeoning
current account deficit. The country is relying mostly on nonconcessional debt flows to finance current account transactions,
which exacerbates the country’s already precarious external debt
position.

4.7 Non-debt creating capital inflows, notably Foreign Direct
Investment (FDI) and portfolio investment have remained subdued
on the back of the intensification of the Indigenization initiatives
that gathered substantial momentum in 2012. As a result, the

country’s overall balance of payments has remained in deficit
estimated at US$498.1 million in 2012 as shown in Figure 6
below.

Figure 6: Balance of Payments (US$M)

Source: RBZ and Zimstat

4.8 Admittedly, the subdued global economic performance projected
for 2013, is envisaged to depress international commodity prices
with adverse effects on the country’s external sector position.

4.9 These adverse balance of payments developments will continue to
undermine efforts to expand the country’s bank deposit base which

supports lending activities and the attainment of sustained
economic growth at large.

5.
INFLATION DEVELOPMENTS

5.1 Economic stability as indicated by price movements has an
important bearing on production costs, export competitiveness, the
balance of payments developments and economic activity at large.

5.2 Adverse inflationary pressures have remained subdued on the back
of tight liquidity conditions, depressed aggregate demand and
stable international oil and world food prices. Against this
background the country’s year on year inflation closed the year at
2.91% in 2012 as shown in the Figure 7 below.

5.3 The inflation outturn of 2.91% realized in December 2012
compares favourably with initial projections of 4%. In the medium
to long term, inflation developments in the domestic economy will
remain inextricably bound to evolution in international oil prices,
world food prices, the US$/rand exchange rate, import tariffs and
the level of aggregate demand in the economy.

Figure 7: Annual Inflation Profile (%)


6.
FINANCIAL SECTOR DEVELOPMENTS

Banking Sector Deposits, Loans and Advances

6.1 Despite adverse external sector developments, banking sector
deposits gradually increased in 2012. Expansion in the deposit base
is attributed to improvements in financial intermediation realized
since the inception of the multicurrency system as shown the
Figure 8 below:

Figure 8: Bank Deposits, Loans and Advances (US$M)


6.2 In consequence, deposits in the banking sector increased
appreciably by 30.7% from US$3,376 million in 2011 to US$4,411
million in 2012. Concomitantly, loans and advances increased by
27.5% from US$2,761 million in 2011 to US$3,519 million in
2012. The loans to deposits ratio, however, marginally declined
from 81.79% to 79.79% during the comparative period.

6.3
Notably, loans and advances remained largely short term in
nature and channeled towards the financing of working capital
with limited funding going towards capital investments.

Figure 9: Composition of Credit to the Private
Sector


6.4 As depicted in Figure 9 above, the lion’s share of loans and
advances were deployed towards financing agriculture (19%),
manufacturing (18%), distribution (17%), households (16%) and
services (11%). Regrettably, the mining, construction, transport
and communications sub-sectors, accessed relatively smaller
proportions of loans and advances extended by banks in 2012.

Banking Sector Overview

6.5 Attendant liquidity shortages coupled with the absence of an active
inter-bank market, limited access to affordable external credit lines
and absence of Lender of Last Resort compounded the domestic
operating environment for banks. This notwithstanding, the
country’s banking sector remains generally safe and sound. This is
despite the challenges faced by Royal Bank and Genesis
Investment Bank.

6.6 Admittedly,
underlying
risks
associated
with
adverse
macroeconomic developments and mismanagement at some banks
provided fertile ground for potential liquidity challenges and
capital insolvency. Against this background, the Reserve Bank
continues to vigilantly monitor and rigorously apply risk based
supervisory techniques geared at facilitating the early detection of
potential bank fragilities.

Interest Rate Developments

6.7 Lending rates quoted by banks in 2012 remained high, in the
backdrop of deep-seated liquidity shortages as a consequence of
limited access to external credit lines and adverse balance of

payments developments. The lending rates also reflected high
premiums charged by some banks, irrespective of their cost
structures.


Figure 10: Average Deposit and Lending Rates (%)


6.8 Against this background, lending rates charged by banks in 2012
averaged over 22% per annum as shown in Figure 10 above. This
compares unfavourably with deposit rates which averaged below
4% per annum in 2012.

Architecture of the Banking Sector

6.9 As at 31 December 2012, there were 22 operating banking
institutions, (excluding Interfin which is under curatorship, Royal

Bank which is under liquidation), 16 asset management companies
and 150 microfinance institutions under the supervisory purview of
the Reserve Bank. The structure of the banking sector is shown in
the Table 2 below.

Table 2: Architecture of Zimbabwe's Banking Sector
Type of Institution
Number
Commercial Banks

Building Societies

Merchant Banks

Savings Banks

Total Banking Institutions

Assets Management Companies

Microfinance Institutions

Recent Developments in the Banking Sector

6.10 Although the banking sector as a whole has been adversely
affected by the aforementioned two or so weak and troubled banks,
these institutions are small and of low systemic importance, in
terms of the volume of assets, loans and deposits falling under their
ambit. Their troubled status did not, therefore, affect the entire
banking sector as would have been the case if they were large
banks.

TROUBLED BANKS

Barbican Bank

6.11 Barbican Bank failed to meet the extended deadline of 31 July
2012 for recapitalization and resumption of banking business.
Accordingly, the Reserve Bank made a recommendation in terms
of section 14 (1)(i) of the Banking Act [Chapter 24:20] to the
Minister of Finance for cancellation of Barbican Bank’s licence.

Interfin Bank (Under Curatorship)

6.12 Following the placement of Interfin Bank under recuperative
curatorship last year, and the subsequent expiration of the initial
curatorship period, the Interfin Bank Curatorship was extended by
a further six (6) months to 11 June 2013. The extension was
necessitated by the compelling need to enable the Curator to
conclude potential recapitalization deals and corporate governance
issues at the bank.
Genesis Investment Bank (Under Liquidation)

6.13 Subsequent to the surrender of its licence on 11 June 2012 in line
with Section 14(4) of the Banking Act [Chapter 24:20] after failing
to meet minimum capital requirements, Genesis Investment Bank

is now under liquidation. This follows the granting of a Final Order
by the High Court on 8 November 2012. Suffice to state that its
deposit base of $1.6 million accounted for an insignificant 0.04%
of total banking sector deposits as at 8 June 2012.
Royal Bank

6.14 Similarly, Royal Bank surrendered its licence on 27 July 2012 after
failing to navigate around operational challenges emanating from
the following:

a) Undercapitalisation;
b) Chronic liquidity challenges;
c) High levels of non-performing loans;
d) Persistent losses;
e) Poor management information systems;
f) Poor board and senior management oversight; and
g) Gross violation of laws and regulations.

6.15 The bank’s total deposits amounted to $5.6 million which
constituted 0.13 % of total banking sector deposits of $4.18 billion
as at 27 July 2012.

6.16 Notwithstanding the surrender of Royal Bank’s licence, the
Reserve Bank allowed it to follow through a recapitalization deal
with external parties. The protracted nature and eventual collapse
of the recapitalization initiatives, however, left Royal bank in an
awkward position, where it was neither under curatorship nor
under liquidation, at a time when the creditors’ funds remained
locked up in the bank.

6.17 In view of this and the need to ensure an orderly exit of the bank,
the Reserve Bank has since appointed a Provisional Liquidator and
duly lodged an application with the High Court to this effect.


Enhanced Troubled Bank Resolution Policy Framework Roll- Out

6.18 In view of the need to enhance financial stability, the Reserve
Bank will be rolling out to the sector the Enhanced Troubled and
Insolvent Bank Policy (TIBP) Framework during the first half of
2013.

6.19 The Policy provides a framework, underpinned by fair, consistent,
transparent, cost effective and timely problem resolution principles
to be followed by any troubled banking institutions.

6.20 The process of rolling out the TIBP Framework is integral in
efforts geared at creating a comprehensive understanding of the
pillars underpinning a framework, of supervisory assessment
methodology, as well as the benchmarks to be used when effecting
various corrective options.
BASEL II/III Implementation

6.21 Following a market wide assessment of the state of preparedness
and implementation progress undertaken at the end of 2012 the
Reserve Bank noted that banking institutions have made significant
progress towards compliance with Basel II/III requirements and
any weaknesses found are being addressed.
Stress Testing

6.22 The Reserve Bank has noted significant improvement in banking
institutions stress testing frameworks over the last two quarters in
terms of coverage, depth and analysis. As Monetary Authorities,
we encourage boards and senior management to continue to refine
their stress testing tools for assessing vulnerabilities as well as for
early warning purposes.

6.23 This is particularly so, as stress tests are proven to be effective risk
management tools and as such should be pro-actively embedded in
business processes rather than merely as a regulatory formality.
ACCREDITATION OF CREDIT REFERENCE BUREAUS

6.24 Following receipt of numerous expressions of interest by private
sector players to establish credit bureaus, the Reserve Bank is
currently seized with the development of an accreditation
framework. The completion of the framework which is targeted
for March 2013, will pave way for the commencement of
operations by accredited bureaus.

6.25 Credit bureaus are an important element of a financial system
and in Zimbabwe, the following immense benefits are expected:

i.
Overcoming existence of asymmetric information between
borrowers and lenders;
ii.
Gathering reliable information on potential borrowers, notably past
repayment behavior which is key in the determination of credit
risks, thereby reducing problems of adverse selection; and
iii.
Reduction of default rates through the development of payment
histories or “reputation collateral” used in securing more
competitive loan rates.

6.26 In the medium term, Authorities will put in place a legal
framework providing for regulation and supervision of credit
reference bureaus.

BANKING SECTOR CAPITALIZATION

6.27 Consistent with pronouncements enshrined in the 2012 Mid Term
Monetary Policy Statement, all banking institutions submitted their
detailed recapitalization plans to the Reserve Bank by 30
September 2012, which were evaluated for credibility.

6.28 Subsequently, the Reserve Bank engaged the respective banking
institutions on the feasibility of their recapitalization plans.
Generally, the recapitalization plans hinged on rights issues,
mergers and consolidations, organic growth and fresh capital
injections from both local and foreign investors.

6.29 In the interest of transparency and accountability, I am pleased to
report that a total of 14 banking institutions met the 31 December
2012 minimum threshold, as shown in the table below:

Table 3: Capitalization Levels – Compliant Banks
BANK
LEVEL OF CAPITALISATION
CBZ Bank Limited
$111.79 million
Standard Bank
$56.50 million
Stanbic Bank
$45.62 million
BancABC
$38.42 million
Barclays Bank
$34.30 million
ZB Bank
$32.34 million
Kingdom Bank
$28.79 million
Ecobank
$28.18 million
FBC Bank
$27.97 million
MBCA Bank
$27.14 million
TN Bank
$26.90 million
CABS
$26.76 million
Tetrad
$25.19 million
NMB Bank
$25.01 million

6.30 Five (5) banking institutions with significant progress towards
compliance, in terms of the credibility of their capitalization plans,
are as tabulated hereunder:

Table 4: Capitalization Levels: Significant Progress Towards
Compliance

6.31 Two (2) banking institutions have recapitalization plans in need
of further improvement to render them credible as stated in the
Table 5 below:

Table 5: Capitalization levels: Recapitalization Plans in Need of
Improvement
BANK
LEVEL OF CAPITALISATION
ZABG Bank
$15.80 million
Capital Bank
$7.50 million

6.32 The recapitalization plans were considered credible and are
expected to come to fruition post the 31 December 2012 deadline.
BANK
LEVEL OF CAPITALISATION
Agribank
$22.64 million
FBC Building Society
$18.97 million
Trust Bank
$18.70 million
Metbank
$17.70 million
ZB Building Society
$14.56 million

Nonetheless, recapitalization plans for two banking institutions
require further refinements to render them credible.

6.33 To this end and in line with the decision taken by Cabinet last year,
the Reserve Bank has authority to deal with the situation pertaining
to individual banks on a case by case basis.

6.34 As regulatory Authorities, however, we have noted with concern
self praise pronouncements of compliance in the press by banking
institutions.

6.35 Forthwith, banking institutions should cease making unilateral
self exaltations in any media as regards compliance with
prudential requirements including minimum capital, without
seeking prior Reserve Bank approval. Any such unsanctioned
declarations will attract appropriate regulatory action.

6.36 At all times, banking institutions will be required to comply with
the applicable minimum prudential requirements in respect of
Asset Quality, Management and Corporate Governance; Liquidity,
and Earnings.

6.37 Additionally,
banking
institutions
that
exhibit
significant
weaknesses in their overall or any CAMEL component i.e. rated

“5” (critical); will automatically be put on an accelerated
capitalization program, and will be subjected to a higher
prudential capital ratio (PCR).
BANKING SECTOR VISION 2020

6.38 The Reserve Bank has finalized a blue print of its Banking Sector
Vision 2020. The vision is centered around the pursuance of
banking sector solvency and stability to anchor sustained economic
growth and development. Within this context, the Reserve Bank
envisions a banking sector by December 2020 with the following
key features, characteristics and capabilities:

a. A thriving banking sector with functional Lender of Last Resort
and active interbank market;
b. The establishment of universal banks and an integrated framework;
c. Adequately capitalized and competitive banking sector with the
ability to support the funding needs of the economy;
d. Banks with ability to attract significant financial resources from
both local and international sources;
e. More inclusive banking sector with improved outreach to the
currently un-banked and under banked sections of the population;
f. Increased interoperability of banking platforms, mobile networks,
and other key national information databases;

g. Robust legal and regulatory framework benchmarked to
international best practice; and
h. Cashless society characterized by electronic and mobile banking;

7.
OTHER POLICY ISSUES AND ADVICE

Rating of Banks

7.1 As provided in our regulation, banking institutions should subject
themselves to annual external credit rating assessments by Credit
Rating Agencies accredited by the Reserve Bank.

Bank Charges and Interest Rates

7.2 Zimbabweans across the board are agreed that the level of bank
charges is out of line with international best practice. In this
regard, the Central Bank has been pre-occupied with the designing
of a framework that ensures self-regulation by the banks. As the
custodians of information on banks, the role of the Central Bank in
the designing of this framework was integral.

7.3 It is heartening to note that after 75 days of negotiations, the
Reserve Bank and the banking sector came up with an agreed

framework which will see substantial reduction in bank charges.
The agreed Memorandum of Understanding (MOU) is due for
signing today 31 January 2013.

ENHANCED CORPORATE GOVERNANCE

7.4 The global financial crisis and its dampening effects on global
economic activity, which almost brought the international financial
system to a screeching halt, was largely attributed to failures and
weaknesses in corporate governance arrangements.

7.5 While the targets of the governance related enhancements that
followed are primarily financial institutions in developed countries,
the principles being promoted are beneficial and instructive to
emerging economies such as Zimbabwe.

7.6 This is particularly so, as the banking sector in Zimbabwe
continues to witness flawed corporate governance practices and
arrangements designed to undermine efforts by the regulatory
authorities to ensure sustained financial sector stability.

7.7 Some, particularly local banking institutions continue to show total
disregard for sound corporate governance practices resulting in
some founding directors ‘dipping their fingers’ into depositors’

funds. The problem has been compounded by the existence of
complex corporate structures within banking groups and financial
conglomerates which are used as conduits for regulatory arbitrage
and siphoning of depositors’ funds.

7.8 It is against the background of these negative developments that
the Reserve Bank will continue to reinforce the adoption of sound
corporate governance practices.

7.9 Moreover, any standards on corporate governance issued by the
Central Bank will be periodically reviewed to ensure continued
relevance. In this regard, the Reserve Bank will shortly be issuing
Corporate Governance Standards which will replace the Guideline
No. 01 -2004 /BSD on Corporate Governance in its entirety.

Cross-Border Banking Supervision

7.10 The emergence of regional banks with significant market share
across Africa, coupled with experiences from the global financial
crises, call for adequate and effective supervision of cross-border
banking groups.
7.11
In response to these developments, regulatory authorities on the
continent have already embraced a regional approach to
supervision and regulation, in order to strengthen cross-border

supervision and supervisory cooperation. As such, efforts are
currently underway to formalize the requisite implementation
structures.

7.12 Within this context, the Reserve Bank will continue to strengthen
its supervisory capacity and cooperate with other regulators on the
continent in the adoption of international best practices and
ensuring that all cross border banking groups are effectively
supervised.

Microfinance Sector

7.13 Microfinance institutions are once again reminded that the Reserve
Bank will not hesitate to cancel operating licenses and to
‘blacklist’ directors of institutions that fail to comply with laws and
regulations governing the conduct of their businesses, including
directives and instructions issued by the Reserve Bank.

7.14 Members of the public are also reminded that currently, all
registered microfinance institutions are non-deposit taking. As
such, institutions and members of the banking public are advised to
desist from dealing with unscrupulous microfinance institutions as

they risk losing their hard earned savings to corrupt and greedy
individuals.

7.15 Going forward, all microfinance institutions are required to
justify interest rates and all other charges levied on borrowed
funds as well as adequately disclose their business conditions.
The following additional measures will also be instituted in the
Microfinance sector by 31 March 2013:

i.
Finalization of Microfinance Bill;
ii.
Consumer Awareness programs; and
iii.
Establishment of the Microfinance Advisory Council.

Financial Inclusion

7.16 Access to financial services remains a challenge for the
marginalized Zimbabwean communities, particularly in remote
parts of the country. In this regard, the Reserve Bank created
scope for the operation of Micro-Finance Banks to provide
credit lines to marginalized borrowers at the lower end of the
market.
7.17 The realization of the over-arching objective of financial inclusion,
however, requires that investors both domestic and foreign take

advantage of this window and invest in Micro-finance banks. This
will undoubtedly accelerate our goal to mainstream the previously
marginalized communities into the formal banking system.

SUPPORT TO SMALL TO MEDIUM SCALE ENTERPRISES
(SMES)

7.18 The contraction of economic activity and the accompanying deindustrialization has been experienced since the turn of the century
has occasioned the proliferation of SMEs. SMEs contribute to
output and employment creation and they are also a nursery for the
larger firms of the future. The most successful developing country
over the last 50 years, Taiwan is built on a dynamic SME sector.

7.19 The SMEs sector requires adequate funding to unlock its potential
as a source of rapid economic growth, poverty reduction, bridging
current supply gaps in the economy, and uplifting living standards
in Zimbabwe. The take off of the SMEs sector in the mining,
manufacturing and services sector requires that the banking sector
re-align its loan portfolio to accommodate the SMEs sector.

7.20 Given the benefits of a vibrant SME sector to the economy, it is
imperative that banks are supportive of this sector through tailored

products including loans and advances especially supply contract
and order financing.

7.21 Generally, SMEs are defined on the basis of three characteristics as
shown in table 4 below:

Table 6: Characteristics of SMEs
Factor
Indicator
Asset base
$10,000 to $2m
Employment
5 to 20 people
Annual Turnover
$30,000 to $5m

7.22 Given the foregoing banking institutions are required to reorient their portfolios such that loans to the SME sector should
constitute at least 30% of the total loan book. The Reserve Bank
will conduct monthly assessments to monitor compliance and any
institution found wanting, will face severe penalties.

7.23 Given the current banking sector loans of $3.5 billion as at 31
December 2012, an allocation of 30% to the SME sector will
translate to loans of $1.05 billion. Assuming $40,000 is granted to
each SME borrower, a total of between 25,000-30,000 clients
would benefit thus creating or sustaining more than half a million

jobs per annum. As the loans grow each year, we envisage
corresponding increases in the number of jobs created or people
empowered by the banking sector.

Financial Sector Consumer Protection Regulations

7.24 The Reserve Bank will, in liaison with the proposed Banking
Sector Ombudsman, issue financial sector Consumer Protection
regulations before 30 June, 2013.

7.25 The regulations will ensure that consumers receive information
that will allow them to make informed decisions, are not subject to
unfair and deceptive practices, and have access to recourse
mechanisms to resolve disputes when transactions go wrong.

Banking Amendment Bill, 2013

7.26 I am pleased to report that the proposals to amend the current
banking laws have culminated in the Banking Amendment Bill
2013, which will be implemented by 31 March, 2013. We,
therefore urge all stakeholders to familiarize themselves with the
provisions of this Bill.

Broad Objectives

7.27 Briefly, the proposed new law seeks to amend the Banking Act
[Chapter 24:20] to enable it to deal more effectively with
developments in the banking sector and, in particular, to achieve
the following objects:

a)
to improve the corporate governance of banking institutions;
b)
to make banking institutions more responsive to their customers’
needs and to encourage the resolution of disputes between banks
and their customers;
c)
to introduce greater transparency in the shareholding and
operations of banking institutions;
d)
to allow banking regulators to monitor and regulate bank holding
companies;
e)
to increase co-operation between the different financial
regulatory authorities; and
f)
to provide for the establishment of an international financial
centre.

Synopsis of the provision

7.28 The proposed new law sets out the responsibilities of directors and
senior management of banking institutions and controlling
companies in relation to banking institutions. These accountable
persons will have a fiduciary duty, and will be obliged to act in
good faith, with due care, efficiently and free of any conflicting
interests.

7.29 In the event of reckless, negligent, or fraudulent conduct/omission,
legal action may be taken against them on behalf of depositors and
creditors who may have suffered loss.

7.30 In terms of the amendments, companies that have control over
banks (controlling companies) will now require registration by the
Reserve Bank.

7.31 The new law will provide legal support to formalised cooperation
and information sharing between the Reserve Bank with other
regulatory bodies such as the Securities Commission, Insurance
and Pensions Commission and the Deposit Protection Corporation.

This is key in facilitating effective supervision of systemically
important financial institutions and minimise regulatory arbitrage.

7.32 The amendments also propose the establishment of a Financial
Sector Development Council, consisting of representatives from all
financial regulatory authorities. The Council’s function will be to
ensure proper collaboration between the regulatory bodies.

7.33 Consistent with consumer protection initiatives, the new law will
establish the office of a financial ombudsperson to mediate and
resolve disputes between financial institutions and their customers.
The function will be carried out by the Reserve Bank. In addition,
the new law seeks to provide for enhanced disclosure of terms and
conditions of business by banking institutions.

7.34 In terms of the proposed law, the Minister may issue regulations on
the registration and supervision of credit reference bureaux. The
establishment of credit reference bureaux is critical in the
management of credit risk by banking institutions and minimise
over-indebtedness by members of the borrowing public.

7.35 It is anticipated that the legislative process will be completed
expeditiously in order to give effect to the proposed provisions.

8.
ISSUANCE
OF
GOVERNMENT
SHORT
TERM
INSTRUMENTS

Treasury Bill Issuances

7.1. In line with the pronouncements embodied in the July 2012 MidTerm Fiscal Policy Review, Government issued short-dated
Treasury instruments. The issuance of short dated instruments was
aimed at addressing persistent systemic liquidity challenges,
unequal distribution of liquidity and the shortage of appropriate
instruments for use as collateral in inter-bank trading. The shortdated paper was also expected to be instrumental in determining
the money market reference interest rate.

7.2. Despite the vigorous lobbying by banks, participation in all the
five auctions was very low. This notwithstanding, Government will
undertake additional Treasury Bill auctions in 2013 on dates to be
announced soon.
Lender of Last Resort

7.3. To enable the Central Bank to function effectively in the
development of the money market, the lender of last resort facility
has to be in place to facilitate the smooth functioning of money
markets. To date, Treasury has been unable to provide the Central

Bank with this fund despite several promises to do so. It is
anticipated though, that this matter will be resolved soon.

Short-term Trade Facilities

7.4. During the year 2012, the External Loans Coordinating Committee
(ELCC) approved short-term facilities amounting to US$3.3 billion
as compared US$2.69 billion approved in 2011 as shown in Table
4 below.

7.5. Approvals during the year 2012 were spread across nine sectors of
the economy, with the financial and agricultural sectors accounting
for the highest values of US$1.13 billion and US$976.8 million
respectively.

7.6. Regrettably, the utilization of approved facilities remained low at
33% in 2012. This compares unfavourably with utilization figures
of US$1.28 billion or 47% of total approved facilities realized in
2011.

Table 7: Approved ELCC Short-term Facilities Year (2011 and
2012)
Sector
No. of
Companies

No. of
Companies

Amount
Approved
(US$ Million)

Amount
Approved
(US$ Million)

Utilized
Amount (US$
Million) 2011
Utilized
Amount (US$
Million) 2012
Agriculture


Financial

955.5
1130.7

366.6
Mining


Tourism


Manufacturing

101.5

20.3
Telecommunication


Distribution

97.8

28.6
50.8
Transport
Nil

Nil
0.9
Nil
Nil
Energy
Nil

Nil

Nil
Nil
Total


7.7. The decline in utilization levels reflects the effects of failure by the
borrowers to meet stringent conditions precedent on the facilities
and availability of alternative sources of financing.

7.8. Stringent borrowing requirements are also prompted by the
country’s external debt overhang. In this regard, the expeditious
resolution of the country’s external debt should continue to rank
high on Government’s priorities.

8. MOBILE FINANCIAL SERVICES (MFS) DEVELOPMENTS

8.1. The Zimbabwean economy has benefited immensely from the
introduction of mobile banking services. Evidently, the customer
base has expanded appreciably. This positive development has
been accompanied by greater access to products such as remittance
transfers, which may prompt existing customers to increase their
use of banking services.

8.2. As Monetary Authorities we advise that mobile money transfers
services are merely a payment system or delivery channel which
does not amount to deposit taking. Accordingly, mobile money
transfers should operate on a credit push principle where all emoney value is backed by pre-funded balances which are held in
banking institutions.

8.3. Notwithstanding the bold strides attained in the provision of mobile
banking services, immense opportunities for growth in mobile
payments abounds, particularly in view of the rapid rise in
penetration rates.

8.4. As such, banks are urged to leverage on this impelling
development in the area of mobile banking as an effective

distribution network for financial products to various segments of
the transacting public.
Review of Legal and Regulatory Framework

8.5. In the line with the provisions of the National Payment Systems
Act [Chapter 24:23] as well as the need for alignment with best
international practices, the need to review the legal and regulatory
framework cannot be over-emphasized. In this regard, as Monetary
Authorities, we are currently seized with the drafting of
appropriate guidelines and policies in the following areas:

a. Payment systems oversight guideline to be finalised by 30 June
2013;
b. E-money and electronic payments guideline to be issued by end of
September 2013.; and
c. Agency banking guideline to be finalized by 31 December 2013.

8.6. The finalization and operationalisation of these guidelines is
envisaged to provide strong impetus to current efforts aimed at
fostering financial stability and effective payment systems
oversight.

8.7. In line with these developments, the Central Bank will continue to
consult widely with other regulatory bodies and relevant
stakeholders including Ministry of Finance, Ministry of Transport
and
Communications,
Ministry
of
ICT,
Post
and
Telecommunication
Regulatory
Authority
of
Zimbabwe
(POTRAZ) and Bankers Association of Zimbabwe (BAZ) in the
development of payment systems in the country. Meanwhile, a
memorandum of understanding between the RBZ and POTRAZ
will be finalized by end of first quarter 2013.

International Best Practices

8.8. The negative effects of the global financial crises have necessitated
increased collaboration among regulators in the adoption of
common standards across financial market infrastructures
worldwide.

8.9. In this regard, the Bank for International Settlements (BIS) through
the Committee on Payment and Settlement Systems (CPSS) and
International Organisation for the Securities Commission (IOSCO)
strengthened and harmonized the standards which culminated in
twenty four (24) Financial Market Infrastructures (FMIs)

Principles issued in April 2012. The 24 FMI principles include the
following among others:

i.
Legal and Governance;
ii.
Risk Management;
iii.
Clearing and Settlement; and
iv.
Efficiency and Transparency.

8.10. The Central Bank will guide the market on the implementation of
the principles to ensure full compliance as well as adherence. As
such, we urge banks and other critical infrastructure providers to
familiarize themselves with the principles availed on the BIS
website ( .

8.11. As overseers of payment systems we are fully committed to the
implementation of the revised principles which should ensure that
our payment systems remain consistent with international best
practices.
Interoperability and Infrastructure Sharing

8.12. Interoperability is defined as the ability of different systems,
networks, applications and other infrastructure of different entities
to interlink and work in congruence effectively and efficiently.

8.13. Patently, one of the major setbacks in the development of
electronic means of payment and financial inclusion is the limited
culture of sharing payment systems infrastructure.

8.14. In this regard, we continue to encourage interoperability and
sharing of infrastructure across various institutions. Shared
infrastructure is an avenue that has potential to bridge the cost and
access gaps that hinder the efficient delivery of financial service.

8.15. Essentially, relationships between financial institutions and
payment system providers should be complimentary rather
than acrimonious.

8.16. In this regard, payment system providers including mobile
network operators are implored to accommodate all banking
institutions on their platforms to ensure that interoperability
and sharing of infrastructure across various institutions is
achieved.
Payment Systems Pricing Strategy

8.17. The promotion of greater financial inclusion and stability entails
the adoption of realistic pricing strategies in order to increase
confidence levels in the payment systems. The ultimate objective

in the development of payment systems is to ensure that financial
services are affordable, safe, accessible, and convenient to
consumers.

8.18. As such, an intricate balance has to be struck between the pricing
policies within our oligopolistic market structures and building a
sustainable confidence level in the services offered. Accordingly,
payment system providers such as mobile network operators
are directed to review their charges by end of March 2013.

Risk Management

8.19. The Central Bank remains vigilant to the challenges that come with
developments in retail payment systems including mobile financial
services.

8.20. In order to address the concerns regarding possible money
laundering activities in mobile money transfers a number of
measures are already in place including the requirement of sim
card registration.

8.21. To further mitigate the risks mobile money transfer services also
have approved transactional limits which are in line with risk and
market developments.

8.22. The Central Bank encourages all payment and financial services
providers to continue developing risk management processes that
are rigorous and comprehensive to respond to current and future
risks brought about by the rapid pace of technological innovations.

Exchange Control Measures to Enforce Timeous acquittal of
forms CD1/CD3/TR2

8.23. Export receipts remain a critical component of the country’s
foreign exchange generating avenues. In the absence of sustainable
foreign investment flows, moderate remittances and limited foreign
aid, the mobilization and full accounting of exports becomes a
critical component of the country’s strategies.

8.24. Failure to fully account for such receipts compounds the country’s
liquidity situation. As such, all exporters must, therefore, obligate
themselves towards timeous acquittal of their export proceeds.

8.25. In this regard, a penalty regime for failure to timely acquit export
proceeds, and also other banking sector misdemeanors, shall be
announced in due course.

8.26. Additionally, Government has requested the Central Bank to come
up with an applicable legislation to ensure that cash based exports,
namely, tobacco and other crops and minerals are regulated.
Accordingly, pronouncements on these regulations will also be
made in due course.

LOAN CONTRACTION PROCEDURES

8.27. The contraction of credit lines and loans in Zimbabwe are
undertaken through the External Loans Coordination Committee
(ELCC). The ELCC has been empowered by Government to use
stipulated guidelines in debt contraction with a view to monitor the
country’s indebtedness to the rest of the world.

8.28. Notwithstanding laid down procedures in the contraction of credit
lines which strictly requires prior ELCC approval, there are
incidences where credit lines are contracted on behalf of
Government outside the purview of the ELCC or involvement of
the Reserve Bank of Zimbabwe.

8.29. Against this background, all institutions both in the private and
public sectors need to send their loan applications through the
ELCC for prior approval. This will ensure that residence of
Zimbabwe contract debt in a structured and coordinated way to
avoid the continued contraction of non-concessionary debt which
will sink the country deeper into a debt trap.

8.30. This also applies to the various vendor financing schemes that have
emerged over the recent past as well as Indigenization and
Economic Empowerment Loans contracted outside the country
which are above US$5 million.

MONEY LAUNDERING

Counterfeit Money

8.31. Under the multiple currency system, the proliferation of counterfeit
notes has gathered pace in a worrisome manner. Mostly, fake notes
in United States Dollars and South African rands are circulating in
Harare, Bulawayo and other parts of the country.

8.32. In this regard, we urge the transacting public and retailers alike, to
be on the constant look out for fake notes. Against this
background, there is need for the general public to familiarize

themselves with the security features of all the currencies presently
accepted as media of exchange in Zimbabwe. On the other hand,
corporates and retailers should adopt the requisite technology that
assist in note detection.

8.33. As Monetary Authorities, we sternly warn those who are in this
illegal business of printing fake notes that the long arm of the law
will definitely catch up with them. The circulation of fake notes
affects business transactions as the acceptability of higher
denominations becomes compromised.

Suspicious Transactions

8.34. As embodied in the Reserve Bank Act, our functions are confined
to monetary and financial matters of the economy. Additionally,
the conduct of financial transactions the world over, are also
governed by the United Nations Convention on Suppression of
Financing of Terrorism (1999), and the Convention Against
Transnational Organised Crime, otherwise known as the Palermo
Convention.

8.35. In the Zimbabwean context, the following pieces of legislation
govern legitimacy of money and its uses:

a. The Bank Use Promotion and Suppression of Money-Laundering
Act (Chapter 24:24);
b. The Serious Offences (Confiscation of Profits) Act (Chapter 9:17);
and
c. The Suppression of Foreign and International Terrorism Act
(Chapter 11:21).

8.36. Within this context, the general public is warned against
undertaking suspicious transactions that are in direct violation of
the above international and domestic legislative provisions.

8.37. We acknowledge that all conventions have been signed and that
the country is compliant with all conventions on anti-money
laundering and financing of terrorism.

Indigenization and Economic Empowerment

8.38. All banks should observe the laws of the country including the
Indigenization and Economic Empowerment laws. In this regard,
the Reserve Bank is working together with the Ministry of
Indigenization and Economic Empowerment to ensure that
compliance with appropriate laws is done in an orderly manner.

8.39. The process to indigenize the banks should, however, take
cognizance of the sensitivities around the operation of the banks to
restore confidence, trust and stability in the sector.

Engagement of the International Community

8.40. As Monetary Authorities, we appreciate efforts to come on board
the Zimbabwean ship by the Multilateral and regional financial
institutions. In this respect the IMF has since lifted suspension of
technical assistance to the country, while the country’s relations
with the World Bank, the African Development Bank (AfDB) and
of late the European Investment Bank (EIB) continue to
strengthen.

Bilateral Investment Protection and Promotion Agreements
(BIPPAS)

8.41. The restoration of respect for the sanctity of Bilateral Investment
Protection and Promotion agreements (BIPPAS) is a welcome
development. This positive development will undoubtedly enhance
the country’s appeal as a safe and prime investment destination in
the sub-region.

9.
CONCLUSION

9.1. The financial sector remains the prime mover of meaningful and
inclusive
economic
development
processes
through
its
indispensable intermediary role. Within this context, the
maintenance of a sound, efficient and safe banking sector remains
critical in effective financial intermediation in Zimbabwe.

9.2. As such, the policy measures embodied in this statement are
envisaged to situate the banking sector in its rightful position as the
fulcrum of economic growth and development, through strong and
adequately capitalized operations. The ultimate objective is to
ensure the efficient mobilization and redeployment of investible
funds to support key productive sectors whose survival is
contingent upon the availability of loanable funds.

9.3. The efficient mechanism of mobilizing and allocating investible
funds will undoubtedly accelerate economic growth, create
employment opportunities and invariably enhance the living
standards of the generality of the citizenry.

9.4. Additionally, adequately capitalized and sound banks provide
important positive externalities, as mobilizers of surplus funds,
efficient allocators of resources, and providers of liquidity and

payment services. It is against this background that the Reserve
Bank remains engrossed and pre-occupied with fostering capital
adequacy and the avoidance of an undercapitalized banking sector.

9.5. Most importantly, the building of adequate capital buffers by banks
will enable them to build confidence in the banking public, mop up
substantial liquidity circulating outside the banking system and
support the meaningful re-orientation of the economy onto a
sustained growth path.

9.6. Moreover, the Sub-region has gathered substantial momentum
towards deepening regional integration within the auspices of
SADC and COMESA. Against this background, the country’s
financial sector will be more susceptible to adverse regional and
global economic developments as the Sub-region and the African
continent, converges towards a global village.

9.7. The effects of regional integration and increased susceptibility to
global challenges, coupled with the envisaged recovery of the
Zimbabwean economy in the foreseeable future requires that
Authorities be pro-active in the adoption of measures that
improve capital adequacy, liquidity, solvency, and the safety
and soundness of the country’s banking sector.

9.8. Undoubtedly, the amalgamation of these factors, points to the
unbridled need to strengthen the country’s banking sector and
arrest the further collapse of financial institutions and the
unnecessary loss of depositors’ funds.

9.9. This coupled with the increased use of well-regulated mobile
banking services will propel the Zimbabwean economy onto a
sustainable growth trajectory.

9.10. Under the envisaged Vision 2020, the country’s banking sector is
expected to be vibrant, viable, strong and stable enough to anchor
sustained economic growth and development.


I THANK YOU

DR. G. GONO
GOVERNOR
RESERVE BANK OF ZIMBABWE
31 JANUARY 2013

APPENDIX 1
THE CHALLENGES ...

a)
Hyper-inflation 525.8% (October 2003) and 619.5% (November
2003);
b)
Shortage of foreign currency for critical imports;
c)
Price, interest and exchange rate distortions in the economy;
d)
Reduced corporate sector viability due to high interest rates,
distorted exchange rates and supply bottlenecks;
e)
Declining levels of both local and foreign investment;
f)
Industrial production capacity under-utilization and diminished
export performance;
g)
Low savings and “short-termism” in investment decisions;
h)
High unemployment levels;
i)
Negative economic growth rates, de-industrialization, and the
accelerated informalization of the formal sector;
j)
Reduced confidence among investors and the citizenry of this
country;
k)
Weaker economic empowerment, especially of the poor and
marginalized, accompanied by worsening poverty levels;
l)
Contradictions between official policies and actions on the ground;
m)
The HIV/Aids pandemic;

n)
Structural weaknesses at policy implementation levels;
o)
Unstable energy supplies;
p)
Persistent high Government budget deficits and debt overhang;
q)
Growing incidents of public and private sector corruption;
r)
High
perceived
country
risk
and
reduced
international
creditworthiness;
s)
Deteriorating and over-burdened urban and rural infrastructure;
t)
Strained relations with some countries, the international donor and
financial community;
u)
Strained transport, telecoms and housing infrastructure;
v)
Unpredictable weather patterns and related droughts;
w)
Quasi-fiscal indebtedness with their side-kick effects on the budget
deficit;
x)
Under-utilization of some acquired land due to resource
constraints;
y)
Bran-drain; and
z)
Disintegration of social structures and norms of existence due to
various pressures.

APPENDIX 2

a. Zimbabweans are a very resilient people, tolerant, hard working,
highly literate and resourceful
b. The country has a resilient economy which is still working, albeit,
at a lower capacity than its full potential;
c. Save for their frustrations with resource constraints, a strong
agrarian culture and love for the soil has gripped the country and
its people;
d. There is a strong and growing high level business mentality and
entrepreneurial spirit amongst the local population;
e. The country has a highly educated population and most able
workforce;
f.
There exists a functional infrastructure base in need of some
minimal investment to raise its standard;
g. Ingredients exist for a strong, tigerish economic base founded on
intellectual capital, a diverse mineral base, tourism, banking, and
manufacturing sectors with unparalleled potential;
h. Zimbabweans are a generally peaceful and highly tolerant people
who have often displayed incredible ability to solve their own
social and political challenges, whatever the magnitude;

i.
Despite high levels of HIV/Aids infections, the country’s
HIV/Aids prevention programs remain effective and credible
internationally;
j.
A sound financial sector with strong regional and international
links;
k. A reputation of quality as a country – from our climate to the
quality of our tobacco/sugar/coffee/beef/flowers and many other
products;
l.
A determined and growing indigenous private sector; and
m. A committed, vibrant and principled political, business, academic,
labour and civil society leadership.

APPENDIX 3


MEMORANDUM OF UNDERSTANDING


BETWEEN


RESERVE BANK OF ZIMBABWE

AND

PARTICIPATING FINANCIAL INSTITUTIONS

PREAMBLE

a) Whereas in the absence of a functional lender of last resort and
primary instruments to use as reference points for the setting of
interest rates, Participating Financial Institutions have relied on their
respective varying cost structures, in order to determine
appropriate levels of fees and charges for their various banking
services;

b) Whereas the Parties hereto hold the mutual interest and intention to
rationalise, on the basis of and subject to the considerations expressed
hereunder, certain of the bank charges and interest rates prevailing in
the market for purposes of ensuring that bank charges and interest
rates promote financial inclusion, stability and economic growth;

c) Whereas cognisant of the need to consult and seek a participatory
resolution of the issue, Participating Financial Institutions engaged
the Reserve Bank of Zimbabwe; and

d) Whereas the Participating Financial Institutions and the Reserve
Bank of Zimbabwe (the Parties) have reached a consensus on the
framework for determining bank charges and interest rates margins.

NOW THEREFORE:
The Parties agree as follows:-
1. Interpretation

1.1 Unless the context requires otherwise, the following terms used
herein shall have the meanings ascribed to them below:
i.
“Agreement” shall mean this Memorandum of Understanding
(MoU) and any schedules and/or annexures as may be
included and/or attached to it.
ii.
“Cost of Funds” refers to a bank’s cost of each component of
funding, which includes, but is not limited to the reward paid
to depositors and shareholders in respect of shareholders’
funds and the cost of attracting such deposits as reflected in
clause 4.3(f);
iii.
“Business day” means a day on which banking institutions are
open for business in Zimbabwe;
iv.
“Participating Financial Institutions” means clearing and
non clearing financial institutions in Zimbabwe which are
party to this agreement;
v.
“RTGS” means the real time gross settlement system used for
electronic funds transfers; and

vi.
“EFTPOS” means electronic funds transfer on point of sale,
or point of sale (POS) in short.
vii.
“Savings Account” refers to a deposit account held at a
Participating Financial Institution which does not have any
maturity date, from which withdrawals can be made, interest
accrues on the account balance, and usually does not require a
minimum balance.

COMMENCEMENT AND TERM

2.1 This Agreement shall commence with effect from 1 February
2013, with the exception of the issuance of debit cards to all
account holders which shall commence on 1 March 2013,
notwithstanding the date of signature by both or any of the Parties,
(“the Effective Date”) and shall endure for a period of one (1) year,
renewable by mutual consent unless terminated by the Parties.
2.2 The Agreement shall not apply in retrospect.

DUTIES AND OBLIGATIONS OF THE RESERVE BANK OF
ZIMBABWE

3.1 The Reserve Bank of Zimbabwe shall communicate directly with
each Participating Financial Institution and shall request whatever
information it deems fit from Participating Financial Institutions,

individually or collectively, in order to fully execute the terms and
conditions of this agreement.
3.2 The Reserve Bank of Zimbabwe in line with its supervisory
mandate, shall engage Participating Financial Institutions operating
outside the agreed framework for bank charges and interest rates,
and shall notify the concerned institution in writing of the need to
comply with the terms and conditions of this Agreement.
3.3 The Parties have agreed that appropriate supervisory action shall be
taken against any defaulting Participating Financial Institution,
including any sanctions deemed necessary which may constitute any
of the following:
i. Monetary sanctions against the institution concerned; or
ii. Suspension of the banking licence; or
iii. Cancellation of licence.

provided that any such supervisory action shall be in line with
the provisions of section 73 of the Banking Act [Chapter 24:20]
and the aggrieved Party shall be afforded the right to be heard in
line with the principles of natural justice.

3.4 The Reserve Bank of Zimbabwe and Participating Financial
Institutions shall develop a standardised format of disclosure

requirements to ensure that Participating Financial Institutions
clearly disclose all their fees and charges in a uniform manner to
enable customers to easily make informed choices and comparisons
among banks.

DUTIES
AND
OBLIGATIONS
OF
PARTICIPATING
FINANCIAL INSTITUTIONS

Disclosure Requirements
4.1 Participating Financial Institutions shall disclose all business
conditions which include the following:
a) The rate of interest payable by the Participating Financial
Institution on different types of deposit/investment accounts;
b) The rate of interest charged by the Participating Financial
Institution on overdrafts, loans and advances; and
c) The standard terms and conditions under which it accepts
deposits, allows overdrafts and offer loans and advances; and
any other services.
4.2 Participating Financial Institutions shall display on an on-going
basis, their conditions of business including all charges and rates of
interest, in prominent places in banking halls, websites, and publish
the same on a quarterly basis in two national newspapers widely
circulated in Zimbabwe.

Interest Rates on Deposit/Investment
4.3 The following conditions shall apply in respect of Participating
Financial Institutions’ relationships with their customers:
a) A Participating Financial Institution shall, in respect of a
fourteen day call or fixed deposit account, pay interest accruing
to the account on agreed contractual terms provided that such
interest may be reduced, in terms of the agreement signed by the
customer, which terms of the agreement shall consistent with
the letter and spirit of this MoU, where the deposit is withdrawn
before the maturity date.
b) Any term deposit by individual customers of one thousand
United States of America Dollars (US$1 000.00) and above held
over a period of at least 30 days shall attract an interest rate of at
least 4% per annum provided that such deposit has been placed
in a term deposit account in accordance with the terms and
conditions applying to such account at a Participating Financial
Institution; which terms shall be consistent with the letter and
spirit of this MoU.
c) A Participating Financial Institution shall, in respect of a
Savings Account, pay interest accruing to that account provided
that each Participating Financial Institution is at liberty to create
its own various types of Savings Accounts whose terms and

conditions shall be consistent with the letter and spirit of this
MoU.
d) A Participating Financial Institution that is required to pay
interest in terms of Clause 4.2(c) above shall calculate and
accrue interest daily and credit interest to the account concerned
at the end of each calendar month subject to the deposit held in
the Savings Account meeting the applicable terms and
conditions on such account.

Lending Rates
e) Lending rates will be subject to a maximum rate of not more
than 12.5 percentage points above a Participating Financial
Institution’s weighted average cost of funds.
f) It was agreed that the weighted average cost of funds shall be
calculated as follows:
Deposit class(a) /total deposit base X class (a) Deposit Rate +
Deposit class(b) /total deposit base X class (b) Deposit Rate
+...+ Deposit class (n) /total deposit base X class (n) Deposit
Rate
(where Deposit classes are: Demand, Time, NCDs, Savings,
Foreign Currency)

g) If a loan or other advance made to a customer, fails to operate
within agreed parameters as set out in the loan agreement, the
Participating Financial Institution may charge a penalty interest
rate not exceeding ten per cent per annum above the contractual
lending rate, excluding associated collection costs including, but
not limited to, legal costs at the legal practitioner-client scale.

Banking Charges
4.4 The following conditions shall apply in respect of Participating
Financial Institutions’ relationships with their individual customers
with monthly deposits that less than or equal to $800:

Agreed Charges
Cash Withdrawal fees
up to 0.5% of cash withdrawal
amount subject to minimum charge of
$2.50
Debit Card fee
First debit card free and thereafter up
to $3.50. The issuing of Debit cards
will be mandatory to every account
holder
Ledger
fees,
Maintenance & Service
fees, by whatever name
they may be called
up to $4 per account

ATM Withdrawal fee
$2 per transaction
POS
Between
$0.10
and
$0.50
per
transaction
Request for Statement
First statement request free per month.
Subsequent requests during the same
month, will attract current charges.
Cash Deposits
no charges shall be levied on cash
deposits

4.5 It was agreed that Participating Financial Institutions currently
levying bank charges/fees below the levels proposed in the MoU
should maintain the charges/fees at the levels currently obtaining;
and that charges/fees not specified in the MoU should not be
increased.
4.6 The Parties agreed that the lending rates and the bank charges are
subject to a review after 6 months from the Effective Date.
4.7 During the 6 months of the subsistence of the MoU, Participating
Financial Institutions shall undertake extensive review and adopt
possible ways of reducing operational expenses which tend to be a
high contributor to the high interest rate spread.

Pensioners
4.8 Every Participating Financial Institutions shall exempt pensioners
aged above 60 years from all bank charges including account
maintenance fees except where such accounts are used for
conducting business related activities.
Promotion of Electronic Means of Payment and Plastic Money
4.9 Every Participating Financial Institution shall promote the use of
plastic money through the introduction of more e-channels, more
point of sale devices, increasing the interoperability of systems and
sharing of service delivery infrastructure for the convenience of the
transacting public.

STANDING COMMITTEE
5.1 The Parties hereto shall form a standing committee which shall also
incorporate officers of the Ministry of Finance.
5.2 The standing committee shall meet regularly to discuss and review
issues covered by this MOU.
5.3 The standing committee shall make recommendations regarding
participation and related matters pertaining to mobile network
operators, including the liberalization of the gateway.

DISPUTE RESOLUTION

6.1 Without prejudice to rights and remedies available at law, the
Parties hereto, shall use all reasonable endeavours to resolve any
disputes arising out of the operation or implementation of this
agreement amicably. Any dispute that is not resolved amicably
between the Parties within fourteen (14) days shall be referred to the
Minister of Finance who may resort, amongst other possible
measures, to the issuance of a statutory instrument.
6.2 This Agreement shall be governed by, and construed in accordance
with, the laws of Zimbabwe.

SIGNED on this day of

For and on behalf of BancABC Limited


CHIEF EXECUTIVE OFFICER
FINANCE DIRECTOR


SIGNED on this day of

For and on behalf of Agricultural Development Bank of Zimbabwe


CHIEF EXECUTIVE OFFICER
FINANCE DIRECTOR


SIGNED on this day of

For and on behalf of Barclays Bank of Zimbabwe Limited


CHIEF EXECUTIVE OFFICER
FINANCE DIRECTOR


SIGNED on this day of

For and on behalf of Capital Bank Limited


CHIEF EXECUTIVE OFFICER
FINANCE DIRECTOR


SIGNED on this day of

For and on behalf of Central Africa Building Society


CHIEF EXECUTIVE OFFICER
FINANCE DIRECTOR

SIGNED on this day of

For and on behalf of CBZ Bank Limited


CHIEF EXECUTIVE OFFICER
FINANCE DIRECTOR


SIGNED on this day of

For and on behalf of CBZ Building Society


CHIEF EXECUTIVE OFFICER
FINANCE DIRECTOR

SIGNED on this day of

For and on behalf of Ecobank Zimbabwe Limited


CHIEF EXECUTIVE OFFICER
FINANCE DIRECTOR

SIGNED on this day of

For and on behalf of FBC Bank Limited


CHIEF EXECUTIVE OFFICER
FINANCE DIRECTOR

SIGNED on this day of

For and on behalf of FBC Building Society Limited


CHIEF EXECUTIVE OFFICER
FINANCE DIRECTOR


SIGNED on this day of

For and on behalf of Infrastructure Development Bank of Zimbabwe


CHIEF EXECUTIVE OFFICER
FINANCE DIRECTOR

SIGNED on this day of

For and on behalf of Interfin Bank Limited (Under Curatorship)


CHIEF EXECUTIVE OFFICER
FINANCE DIRECTOR


SIGNED on this day of

For and on behalf of Kingdom Bank Limited


CHIEF EXECUTIVE OFFICER
FINANCE DIRECTOR

SIGNED on this day of

For and on behalf of MBCA Bank Limited


CHIEF EXECUTIVE OFFICER
FINANCE DIRECTOR

SIGNED on this day of

For and on behalf of MetBank Limited


CHIEF EXECUTIVE OFFICER
FINANCE DIRECTOR


SIGNED on this day of

For and on behalf of NMB Bank Limited


CHIEF EXECUTIVE OFFICER
FINANCE DIRECTOR


SIGNED on this day of

For and on behalf of People's Own Savings Bank


CHIEF EXECUTIVE OFFICER
FINANCE DIRECTOR

SIGNED on this day of

For and on behalf of Stanbic Bank Zimbabwe Limited


CHIEF EXECUTIVE OFFICER
FINANCE DIRECTOR


SIGNED on this day of

For and on behalf of Standard Chartered Bank Zimbabwe Limited


CHIEF EXECUTIVE OFFICER
FINANCE DIRECTOR

SIGNED on this day of

For and on behalf of Tetrad Investment Bank Limited


CHIEF EXECUTIVE OFFICER
FINANCE DIRECTOR

SIGNED on this day of

For and on behalf of Trust Banking Corporation Limited


CHIEF EXECUTIVE OFFICER
FINANCE DIRECTOR


SIGNED on this day of

For and on behalf of ZB Bank Limited


CHIEF EXECUTIVE OFFICER
FINANCE DIRECTOR

SIGNED on this day of

For and on behalf of ZB Building Society


CHIEF EXECUTIVE OFFICER
FINANCE DIRECTOR
SIGNED on this day of

For and on behalf of Zimbabwe Allied Banking Group


CHIEF EXECUTIVE OFFICER
FINANCE DIRECTOR

SIGNED on this day of

For and on behalf of TN Bank Limited


CHIEF EXECUTIVE OFFICER
FINANCE DIRECTOR

SIGNED on this day of

For and on Behalf of the Reserve Bank of Zimbabwe


GOVERNOR OF THE RESERVE BANK