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

JANUARY 2012

TABLE OF CONTENTS


List of Tables

List of Figures

1.
INTRODUCTION AND BACKGROUND

1.1
This Monetary Policy Statement issued in terms of Section 46 of the Reserve
Bank Act (Chapter 22:15), is presented at a time when the economy is
exposed once again to financial and economic vulnerabilities emanating
from the continued fragility of the global economy, due to weak global
growth and emerging financial turbulences.

1.2
Adverse developments in the global economy continue to orchestrate knock
on effects on emerging and developing economies through negative external
shocks. The impact of these turbulences that has had debilitating effects on
global capital markets are currently being transmitted to developing
countries such as Zimbabwe particularly amplified by increased
globalization and regionalism.

1.3
Zimbabwe remains susceptible to the vagaries of the adverse external
macroeconomic environment, particularly within the aegis of the multiple
currency system which is typified by limited macroeconomic policy
instruments. In essence, lack of potent policy instruments to absorb both
domestic and external shocks relegates Zimbabwean policy makers to mere
observers and pray that global developments remain favourable.

1.4
The pertinent question for Zimbabwe which we should grapple with in 2012
is whether the country can sustain the growth trajectory witnessed since the
onset of the multicurrency system in the face of stalling global economic
activity, under the same monetary regime. Despite limited integration with
the capital markets in advanced economies, the costs and risks of a fall from

the country’s growth path attained in the past 3 years remain disconcertingly
high.

1.5
Although the Zimbabwean economy is projected to further grow by 9.4% in
2012, downside risks in the form of firming global food and fuel prices,
amplified by the likelihood of a drought affecting the country and some parts
of the region, will potentially have adverse ramifications on the budget.

1.6
In view of the country’s high commodity dependency, declines in global
activity and commodity prices will have inescapable consequences for the
country’s export earnings, and hence its output, incomes, and fiscal
revenues. Diaspora remittances and investment flows are likely to weaken,
with knock-on effects on domestic demand, banking sector liquidity and
loan quality, resulting in more difficult credit conditions.

1.7
Under the multicurrency system, the country has virtually lost monetary
policy autonomy, making it difficult for the country to intervene with
appropriate stimulus packages in the event of exogenous shocks. As a result,
the onus should be on caution and preparation for action, being conscious of
the absence of adequate foreign exchange reserve buffers to respond to
exogenous shocks.

1.8
The meaningful recovery of the Zimbabwean economy is also contingent
upon increased financial intermediation by the country’s banking sector. The
intermediary role of banks remains critical in the re-deployment of surplus
investible funds into key productive sectors of the economy. This is
particularly so given persistent liquidity challenges that have lingered in the
economy since the introduction of the multiple currency system.

1.9
Against the background of serious developmental constraints imposed by
persistent liquidity challenges, this Monetary Policy accords great
prominence to policy measures geared at promoting financial sector stability
to ensure the safety and soundness of the banking system. As such, the
theme of this Monetary Policy Statement is Ensuring Financial Sector
Stability. Accordingly, the need to strengthen financial regulation and
supervision to mitigate underlying risks that have accompanied the multiple
currency system ranks high on our priorities.

1.10 Within this context, this Monetary Policy, therefore, treads a fine line
between addressing the domestic economic challenges and exogenous
shocks from the adverse effects of an impending global downturn.

2.
GLOBAL ECONOMIC DEVELOPMENTS

2.1
Global economic activity slowed down from 5.1% in 2010 to 3.8% in 2011
on account of the negative repercussions of the sovereign debt crisis that
engulfed the Euro Zone and the US as well as a severe earthquake that hit
Japan earlier in the year. These adverse developments have in turn
occasioned uncertainty over global economic performance in the outlook.

Table 1: Summary of World Output

2012F
2013F
World Output
2.8%
‐0.7%

Emerging and Developing
Economies

Advanced Economies
0.1%
‐3.7%

Latin America & Caribbean
4.3%
‐1.7%

Sub‐Saharan Africa

Source: World Economic Outlook Update (January 2012)
2.2
In the backdrop of the sovereign debt crisis, economic activity in advanced
economies slowed down in 2011 culminating in a mild recession in the euro
zone. Concerns about sovereign debt sustainability in the European
Monetary Union are becoming increasingly endemic. The recent contagion
to countries initially thought to have relatively solid public finances can
potentially dampen economic growth prospects initially anticipated.

Table 2: Debt and Other Indicators for Selected Advanced Economies -Oct

Country
Total Debt
GDP at
Constant
Prices
Total
Debt/GDP
Per Capita
Debt
Total
Debt/Exports

(US$bn)
US$bn
Percent
US$
Percent
Greece

Italy

Japan

Portugal

Spain

USA

Source: World Economic Outlook (September 2011)

2.3 It is evident that the Euro-zone and Japan are in debt distress with countries
such as Spain, Greece and Portugal, and Italy having very high debt to GDP
ratios of over 100% and debt to export ratios of over 300%. This implies that
these countries would find it extremely difficult to repay their loans within a
short period of time.

2.4 The moderation of global demand for goods and services is envisaged to
retard economic growth. This is a result of aggressive fiscal consolidation
measures instituted to ensure long-term fiscal and debt sustainability in some
major economies, tight financing conditions and low confidence levels as a
result of concerns over sovereign debt risks. In addition, the adverse impact
of early supply-chain disruptions following the earthquake that hit Japan
earlier in the year, and high commodity prices, also negatively affected
global economic recovery.

2.5 Notwithstanding these negative global developments, economic activity in
emerging market economies remains relatively strong, underpinned by
increased domestic demand and increased external trade with rapidly
growing Asian countries such as China and India. Against this background,
growth is estimated to have expanded by 4.9%, in the Sub-Saharan Africa
region in 2011, also immensely benefiting from robust private and public
consumption.

2.6
Despite moderation in output growth, economic activity in emerging market
economies remains elevated. The decline in commodity prices and the slowdown in global growth have had a mitigatory effect on inflationary
pressures.

Implications of the Global Developments on SADC and Zimbabwe

2.7 Subdued global economic recovery and the sovereign debt crisis in the Euro-
zone have combined to increase the fragility of economic activity in the
region, given the strong economic and trade synergies between SADC and
Europe.

2.8 The negative effects of the sovereign debt crisis have largely been
transmitted through declining trade opportunities as global trade shrinks,
remittances, aid, and foreign direct investment (FDI) flows. In addition, the
deterioration in terms of trade occasioned by depressed international
commodity prices also affects commodity dependent countries in the region
such as Zimbabwe.

International Commodity Price Developments

2.9
International commodity prices which started the year on a solid footing
benefiting from the recovery of the global economy and accompanying
demand in 2010, however, lost this momentum in the second half of 2011. In
particular, commodity prices for platinum, copper and nickel retreated in the
second half of 2011, on the back of the impact of the sovereign debt crisis on
the performance of Euro-zone and US economies.

Figure 1: Commodity Prices

Source: Bloomberg

2.10 Gold prices, however, remained buoyant largely benefiting from the
weakening of the US$, which increased its demand as a safe investment
haven. On the other hand, crude oil prices firmed to levels above the
US$100/barrel mark, on the back of political instability experienced in North
Africa and the Middle East for the greater part of 2011.

2.11 Despite the marginal retreat in commodity prices as shown in the graphs
above, international commodity prices remained favourable.


4 Jan'11
28‐Jan
23‐Feb
21‐Mar
14‐Apr
13‐May
9‐Jun
5‐Jul
29‐Jul
26‐Aug
21‐Sep
17‐Oct
10‐Nov
6‐Dec
Copper and Nickel Prices
Copper us$/tonne
Nickel us$/tonne

4 Jan'11
28‐Jan
23‐Feb
21‐Mar
14‐Apr
13‐May
9‐Jun
5‐Jul
29‐Jul
26‐Aug
21‐Sep
17‐Oct
10‐Nov
6‐Dec
Gold and Platinum Prices
Gold us$/oz
Platinum us$/oz

Figure 2: Crude Oil Prices US$/barrel

Source: Bloomberg

3.
ECONOMIC OUTLOOK

3.1
Against the background of relatively favourable commodity prices coupled
with a stable macroeconomic environment, the Zimbabwean economy which
grew by 8.4% in 2010 is estimated to have grown by 9.3% in 2011.
Expansion in economic activity in 2011 was underpinned by growth in
mining (25.8%), agriculture 7.4%), finance and insurance (24%),
distribution and tourism (10.3%) and manufacturing (3.5%).

3.2
The recovery in the manufacturing sector, however, remains sluggish on the
back of lack of long term finance to recapitalize operations as well as the
negative repercussions of frequent power outages.


4 Jan'11
18‐Jan
1‐Feb
15‐Feb
1‐Mar
15‐Mar
29‐Mar
12‐Apr
28‐Apr
13‐May
30‐May
13‐Jun
27‐Jun
11‐Jul
25‐Jul
10‐Aug
24‐Aug
7‐Sep
21‐Sep
5‐Oct
19‐Oct
2‐Nov
16‐Nov
30‐Nov
14‐Dec

Figure 3: GDP Growth (%)


Source: Ministry of Finance
3.3
Economic activity is projected to further grow by 9.4% in 2012, underpinned
by strong performance in finance, 23%; mining, 15.9%; tourism, 13.7%; and
agriculture, 11.6%. Downside risks to the outlook, however, include the
following:

i.
The likelihood of an unfavourable agriculture season characterized by delays
in the distribution of subsidized inputs, late onset of the rainy season and
mid season dry spells;
ii.
Erratic power supply and rising utility costs;
iii.
Dilapidated infrastructure;
iv.
Uncertainty with regards to the implementation of the indigenization and
economic empowerment policy;
v.
Political uncertainty surrounding the impending elections; and
‐14.8%

‐20.0%
‐15.0%
‐10.0%
‐5.0%


2011Est
2012F

vi.
Slow-down in export demand as global economic activity decelerates.

3.4
Price stability experienced under the multiple currency system also provided
an enabling business environment in 2011.

Inflation Developments

3.5
Reflecting sustained price stability that has typified the multiple currency
system, annual inflation remained low and stable in 2011 at levels below
5%. As depicted in the figure below, annual headline inflation which stood
at 3.5% in January 2011, decelerated significantly to 2.5% in May 2011.
Inflation, however, took an upward trend, rising to 4.9% in December 2011.

3.6
Notwithstanding the rise in inflation between January and December 2011,
Zimbabwe’s annual headline inflation compares favourably with regional
economies and is aligned with the SADC macroeconomic convergence
target of 5%.

Figure 4: Annual Headline Inflation (%)

Source: ZIMSTAT and SARB

3.7
During 2011, notable food price increases were registered for vegetables,
meat and mineral waters, soft drinks and fruit juices. Notwithstanding these
adverse price developments, annual food inflation which commenced the
year at 6.8%, declined to 2.3% in May 2011, before rising to 5.8% in
December 2011.

3.8
On the other hand, non food inflation which stood at 2.2% in January 2011
receded to 0.6% in May, before accelerating to 4.5% by December 2011.
Rising domestic electricity tariffs, gas and other fuel prices, rentals and
passenger transport fares spurred non-food inflation over the period January
to December 2011.

‐6
‐4
‐2

‐
Feb‐10
Mar‐10
Apr‐10
May‐10
Jun‐10
Jul‐10
Aug‐10
Sep‐10
Oct‐10
Nov‐10
Dec‐10
Jan‐11
Feb‐11
Mar‐11
Apr‐11
May‐11
Jun‐11
Jul‐11
Aug‐11
Sep‐11
Oct‐11
Nov‐11
Dec‐11
Percent (%)
Inflation Y.O.Y
Zimbabwe
SA

3.9
The appreciation of the South African Rand against the US$, over the period
up to September 2011, also generated adverse inflationary pressures. This
notwithstanding, inflationary pressures in the domestic economy were
somewhat dampened by the weakening of the South African rand over the
period September to November 2011 whose pass through effects are
transmitted through imports.

3.10 In the outlook, inflation pressures are likely to emanate from rising global
food prices, exchange rate movements between the rand and the US$ as well
as rising wage demands from both the private and public sectors. The
envisaged stabilization of international oil prices is, however, likely to
dampen inflationary pressures in the Zimbabwean economy in 2012.

External Sector Developments

3.11 In the backdrop of favourable international commodity prices and improved
industrial capacity utilization, merchandise exports increased significantly
by 30.2% from US$3 380 million in 2010 to US$4 339 million in 2011. This
notwithstanding, imports which grew by 23.3% from U$5 161.8 million in
2010 to US$6 365.4 million in 2011, thereby surpassing exports earnings.

3.12 This development culminated in the recurrence of an unsustainable current
account deficit estimated at US$1 887 million in 2011, representing 23.4%
of GDP. The financing of the current account balance has, however,
remained a challenge in the backdrop of subdued capital account inflows.

3.13 Although the capital account is estimated to have improved from a surplus
of US$617.5 million in 2010 to a surplus US$1 219.6 million in 2011, the
inflows remain inadequate to finance the current account deficit projected
for 2011. Accordingly, the overall balance of payments (BOP) position is
projected to remain precariously difficult, particularly in view of reserve
inadequacy and sluggish growth in manufactured exports.

3.14 It is against this background that the country continues to finance the
balance of payments deficits through the accumulation of external payment
arrears. This exceptional mode of financing the balance of payments
militates against initiatives geared at securing long term offshore financing
to support sustained economic recovery.

3.15 In the outlook, the dampening effect of the Eurozone debt crisis on
international commodity prices, diaspora remittances, and capital inflow is
expected to have negative repercussions on Zimbabwe. In addition, erratic
rainfalls experienced in the 2011/12 farming season are likely to necessitate
the importation of grain to augment domestic output to ensure food security.
These negative developments are expected to reinforce each other to worsen
the country’s external sector position.

4.
MONETARY DEVELOPMENTS
Monetary Developments

4.1
In the backdrop of growing depositor confidence, broad money supply,
currently defined as total banking sector deposits, exhibited an upward trend,

over the period January to November 2011, increasing by an average of
US$88.4 million on a monthly basis.

Figure 5: Deposits (US$M)


4.2
Accordingly, consolidated deposits1 held by banks amounted to US$3 254.5
million as at 30 November 2011, representing an increase of US$958.2
million (41.7%), compared with US$2 296.3 million realized during the
comparative period in 2010. Year on year growth in deposits has, however,
progressively declined from 80% in September 2010 to 40% in September
2011 before marginally rising to about 50% in November 2011 as shown in
the figure below.


1 These are net of interbank deposits

Oct‐10
Nov‐10
Dec‐10
Jan‐11
Feb‐11
Mar‐11
Apr‐11
May‐11
Jun‐11
Jul‐11
Aug‐11
Sep‐11
Oct‐11
Nov‐11

Figure 6: Year on Year Growth in Deposits


4.3
Deposits in the banking sector continue to be of a short term nature, thereby
presenting worrisome vulnerabilities in the sector. In this regard, short term
deposits, which comprise of demand, savings and under 30-day deposits,
constituted 89.3% of the total deposits in the banking sector as at 30
November 2011. The high concentration of short term transitory deposits
partially reflects that economic agents are largely using the banking system
for facilitating salary payments rather than deliberate and planned savings.

Bank Lending

4.4
In concordance with the expansion in the country’s deposit base, total credit
to the private sector grew by 84.3% or US$1 317.9 million, from US$1
563.9 million in November 2010 to US$2 881.9 million in November
2011.This development though promotive of private sector led growth still

Oct‐10
Nov‐10
Dec‐10
Jan‐11
Feb‐11
Mar‐11
Apr‐11
May‐11
Jun‐11
Jul‐11
Aug‐11
Sep‐11
Oct‐11
Nov‐11
Source: RBZ

falls short of credit required to support fast paced economic growth that
meaningfully creates jobs and uplift the general standards of living for the
generality of Zimbabweans.

4.5
Against the background of expanded credit and growth in the deposit base,
the loan to deposit ratio2 increased appreciably from 61.9% as at 31
December 2010 to over 71.7% by the end of December 2011. If offshore
lines of credit are included the loans to deposit ratio for December 2011
exceeds 87%.

Figure 7: Loan to Deposit Ratio


4.6 Consistent with the transitory nature of deposits coupled with the attendant
liquidity challenges, banking sector credit has also largely been short-term in
nature.

2 Loans exclude offshore lines of credit

Source: RBZ

P

4.7 C
m
b

F

S

4.8
L
d
c
t

Private Se
Credit to
mortgages,
bills discou
Figure 8: C
Sectoral D
Loans and
distribution
communic
total loans

Oct 10
Loans
ector Cred
the privat
6.2%; ban
unted; 2.3%
Compositio
Distributio
d advances
n (17%),
ation (16%
and advan
Oct‐10
Nov‐10
Dec‐10
& Advances
dit
te sector
nker’s acce
%.
on of Clai
on of Cred
extended
, agricult
%), service
nces to indi
Jan‐11
Feb‐11
Composition
Mortgages

comprised
eptances, 5
ms on Pri
dit
by the ba
ture (16%
es (15%),
ividuals am
Mar‐11
Apr‐11
n of Claims o
Bills Discounted
d of loan
5.8%; other
ivate Secto
anking sec
%), and
and minin
mounted to
May‐11
Jun‐11
Jul‐11
on Private Sec
Bankers Acc
ns and ad
r investme
or
tor largely
manufact
ng (6.4%)
o 15%.
Jul‐11
Aug‐11
Sep‐11
ctor
ceptances
O
dvances, 8
ents, 2.7%;
y benefited
turing (18
sectors, w
Oct‐11
Nov‐11
Other Investments
83%;
; and

d the
8%),
while

F
D

I

4.9
L
h
h
m

4.10 T
in
le
q
b

T
I
Figure 9: S
December


Interest R
Lending an
high, largel
high associ
money mark
The absenc
nterest rate
ending rate
quoting len
between 0.1
Transport, 3.04%
ndividuals, 15.81%
Sectoral D

Rates
nd investm
ly sustaine
iated risks
ket.
ce of a func
e range qu
es quoted b
nding rates
15% and 1
Services, 15
%
Distribution,
istribution
ment rates
d by persis
, limited l
ctioning m
uoted by b
by banks ra
s of around
7%.
5.21%
16.90%

n of Loans
quoted by
stent liquid
lines of cr
money mark
banks. As
anged betw
d 20%. Tim
s and Adv
y banks h
dity shorta
redit and t
ket has res
at end of
ween 8% a
me deposi
Min
vances as a
have remai
ages, high c
the absenc
sulted in th
f October 2
and 32% w
it rates, ho
Agriculture, 16
ning, 6.42%
at 2
ined relati
credit dem
ce of an ac
he widenin
2011, nom
with most b
owever, ran
6.32%
Construc
Communic
Financial F
Manufactu

ively
mand,
ctive
ng of
minal
anks
nged
ction, 4.17%
ation, 1.42%
Firms, 2.63%
ring, 18.08%

4.11 Notwithstanding the realization of positive real interest rates on investment
deposits, term deposits have remained low on the backdrop of high
opportunity cost of holding the deposits.

4.12 Despite high lending rates charged by banks, savings and demand deposits,
which constitute the bulk of the deposits, continue to attract low interest
rates and high transaction charges. This negative development continues to
militate against efforts geared at promoting a savings culture among the
banking public. In turn this compounds the country’s liquidity situation
which also hamstrings the economic recovery process.

5.
FINANCIAL SECTOR DEVELOPMENTS

5.1
The banking sector remained in a safe and sound condition in 2011
notwithstanding underlying risks posed by the operating environment
notably volatile deposits, absence of an active inter-bank market and lack of
an effective lender of last resort function, market illiquidity, cash based
transactions and limited access to external credit lines.

5.2
The weak and troubled banks in the sector are few, small and of low
systemic importance. Collectively, as at 31 December 2011, these
institutions had a combined market share below 5% in terms of total
assets, deposits and loans, as depicted in the table below:

Table 3: Market Share of Weak and Troubled Banks
Institutions
Market Share of
Assets
Market Share of
Deposits
Market Share of
Loans
Strong Banks

95.86%
97.33%
96.16%
Weak & Troubled Banks

4.14%
2.67%
3.84%

5.3
Despite attendant challenges, the banking sector experienced marked
improvement in its intermediary role, which has resulted in improved
financial support to the key productive sectors of the economy.

5.4
The Reserve Bank has, however, noted with concern the gradual
deterioration in asset quality as reflected by the level of non-performing
loans which is now trending towards the watch list category. Asset quality
challenges can potentially heighten liquidity risks given the current
operating environment where credit is largely financed by volatile short term
deposits. In this regard, it is imperative that banking institutions enhance
their credit risk management systems with special emphasis on credit
assessment, origination, administration, monitoring and control standards.

5.5
Despite well-documented benefits that accompanied the adoption of multiple
currencies, a new set of challenges for the banking sector including frauds
and robberies has emerged. Within this context, the Reserve Bank issued a
circular on enhancement of security arrangements at branches in 2009.
Whilst satisfactory response to this call has been recorded in the urban areas,
the Reserve Bank notes that there is great scope to enhance security

arrangements by banks in outlying branches. This is evidenced by numerous
incidences where outlying branches have been targeted by robbers.

5.6
It is against this background that the Reserve Bank urges banking
institutions to tighten security systems in all branches to mitigate operational
risks that have affected banks under the multiple currency system.

ARCHITECTURE OF THE BANKING SECTOR

5.7
As at 31st December 2011, there were 26 operational banking institutions
(including POSB), 16 asset management companies and 157 microfinance
institutions under the supervision of the Reserve Bank.

Table 4: Structure of Banking Sector
Type of institution
Number
Commercial Banks*

Merchant Banks

Building Societies

Savings Bank

Finance Houses

Discount Houses

Total Banking Institutions

Asset Management Companies

Microfinance institutions

*Excludes Barbican Bank which was re-licensed but is not yet operational.

RECENT DEVELOPMENTS IN THE BANKING SECTOR

Barbican Bank

5.8
Following the unbundling of ZABG, Barbican Bank was re-licensed
together with Royal Bank and Trust Bank. Barbican Bank has, however, not
been able to resume operations within the 12 months period provided in
section 14 (1) (i) of the Banking Act [Chapter 24:20].

5.9
In view of the expiry of Barbican Bank’s licence on 30 September 2011, the
Reserve Bank notified the bank of its intention to cancel the banking licence
in terms of the provisions of the Banking Act. The bank appealed to the
Minister of Finance and the Reserve Bank is still awaiting the Minister’s
response.


Renaissance Merchant Bank Limited

5.10 Pursuant to the expiry of the initial six-month curatorship period on 2
December 2011, the Reserve Bank extended the period of curatorship to 3
February 2012. The curatorship period has now been extended to 3 March
2012 to enable the Curator to finalise recapitalization initiatives currently
underway.

STATUS OF BANKING SECTOR CAPITALISATION

5.11 As at 31 December 2011, 20 out of 25 operating banking institutions
(excluding POSB) were in compliance with the prescribed minimum capital
requirements, while all the 16 asset management companies were compliant

with the minimum capital requirement of $500,000. The table below shows
the capitalization status of the banking sector as at 31 December 2011.
Table 5: Capitalization of the Banking Sector as at 31 December 2011

INSTITUTION
Declared Core
Capital as at 31
December 2011
Prescribed
Minimum Capital
COMMERCIAL BANKS
CBZ BANK
65,219,416.00
12,500,000.00
STANCHART
53,204,639.00
12,500,000.00
BARCLAYS BANK
33,374,247.00
12,500,000.00
BANCABC
32,075,487.14
12,500,000.00
STANBIC BANK
31,974,967.00
12,500,000.00
ZB BANK
20,695,741.00
12,500,000.00
NMB BANK
19,788,114.00
12,500,000.00
MBCA BANK
19,484,022.00
12,500,000.00
METROPOLITAN BANK
17,955,298.00
12,500,000.00
FBC BANK
16,824,331.00
12,500,000.00
INTERFIN BANK
16,275,804.88
12,500,000.00
AGRIBANK
14,144,691.57
12,500,000.00
TN BANK
13,380,596.00
12,500,000.00
TRUST BANK
12,764,043.00
12,500,000.00
KINGDOM BANK
4,203,203.00
12,500,000.00
ROYAL BANK
3,422,410.00
12,500,000.00
ZABG BANK
(15,348,157.00)
12,500,000.00
MERCHANT BANKS
TETRAD INVESTMENT
12,726,213.00
10,000,000.00
ECOBANK
10,883,265.00
10,000,000.00
GENESIS INVESTMENT
(3,204,691.00)
10,000,000.00
RENAISSANCE
(Under Curatorship)
BUILDING SOCIETIES
CBZ BUILDING SOCIETY
22,705,129.00
10,000,000.00
CABS
14,351,109.00
10,000,000.00
FBC BUILDING SOCIETY
13,545,567.00
10,000,000.00
ZB BUILDING SOCIETY
13,401,494.58
10,000,000.00
SAVINGS BANK
POSB
10,797,887.00
‐

5.12 Kingdom Financial Holdings Limited (KFHL) has now concluded an
agreement with Afrasia Bank Limited (ABL) domiciled in Mauritius where
ABL will inject equity capital of $9.5 million.

5.13 Following this injection, Kingdom Bank will be in compliance with the
minimum capital requirements. In addition, the bank is in the process of
raising supplementary capital of $10 million.

5.14 The Reserve Bank has noted that despite several extensions of
recapitalisation deadlines, a few banking institutions have failed to
conclude their recapitalisation initiatives. As such there is no prudential
basis for the continued existence of such entities.

5.15 Accordingly, the undercapitalised institutions should do the honourable
thing and voluntarily surrender their licences to the supervisory
authorities, failing which they will be dealt with in line with the Reserve
Bank’s Troubled and Insolvent Bank Resolution Policy.

5.16 As you may recall, from my previous Monetary Policy Statements, the
Reserve Bank granted several recapitalisation deadline extensions to allow
for the finalization of the various lethargic and protracted recapitalization
initiatives that were purportedly at various stages of implementation.

5.17 We note as Supervisory Authorities, that these troubled banking institutions
are conspicuously oblivious of the clear global trends towards consolidation
among banks.

5.18 Since 2005, the Reserve Bank has advocated for consolidations through
mergers and acquisitions as laudable market-oriented solutions to troubled
banking institutions.

5.19 Globally, mergers and acquisitions have become a major strategic option for
banking aimed at entrenching a strong, efficient and diversified financial
sector that ensures the safety of depositors’ funds, plays an active
developmental role in the economy, and competes effectively in the global
financial system.

5.20 Accordingly, all non-compliant institutions, including those previously
issued with special dispensations for compliance with minimum capital
requirements, have up to 14 February 2012 to finalise their
recapitalisation initiatives or consummate their mergers and acquisitions.

5.21 By no later than 29 February 2012, the Reserve Bank shall engage those
institutions that would have failed to identify credible partners and conclude
the recapitalization transactions. The Reserve Bank will deal decisively, with
all non compliant institutions in terms of the Troubled and Insolvent Bank
Policy by no later than 31 March 2012.

5.22 It follows that, with effect from 1 April 2012, any banking institution that
is not compliant with the minimum capital requirements shall not be allowed
to conduct banking business.

5.23 For the avoidance of doubt, all dispensations for compliance with minimum
capital requirements granted to non-compliant institutions are hereby

revoked with immediate effect, and superseded by the timeframes detailed
herein.

STRENGTHENING
THE
TROUBLED
BANK
RESOLUTION
FRAMEWORK

5.24 Globally, the robustness of the legal framework has been noted to be a
fundamental factor in determining the efficacy of the bank resolution
framework.

5.25 Our past experiences have shown that the current bank resolution
framework, as contained in several statutes including the Banking Act,
Deposit Protection Corporation Bill, Troubled Financial Institutions
(Resolution) Act, Companies Act, and Insolvency Act is out of sync with
best practice.

5.26 As Regulatory Authorities, the Reserve Bank, in liaison with other key
stakeholders, is committed to ensuring that the legal and regulatory
framework for the banking sector remains relevant and robust to deal with
current and future challenges.

5.27 In pursuit of this objective, the Banking Laws will be amended to strengthen
the Troubled and Insolvent Bank Resolution Framework incorporating
Prompt Corrective Actions (PCAs).

ENHANCEMENT OF BANKING SECTOR STABILITY

Risk-Based Supervision

5.28 The Reserve Bank’s supervisory framework will continue to be underpinned
by Risk-Based supervision methodologies, which place emphasis on the
accurate determination of the risk profiles of banking institutions and
adequacy of risk management systems. The Risk-Based Supervision
framework also provides for on-going interaction among supervisors, banks
and external auditors through prudential meetings.

5.29 Risk-Based Supervision provides a solid foundation for implementation of
the Basel II/III framework.

Effective Supervision of Banking Groups

5.30 A number of banking institutions have used associate entities in their group
structures as conduits for indulgence in regulatory arbitrage, and
engagement in non-permissible activities. A number of banking institutions
have used associate entities in their group structures as conduits for
indulgence in regulatory arbitrage, and engagement in non-permissible
activities.

5.31 The unfounded litigations on the legality and scope of the Reserve Bank’s
jurisdiction over Bank Holding Companies clearly demonstrates the level of
ignorance of the provisions of Banking Laws by the shareholders.

5.32 For the avoidance of doubt, it must be noted that the Reserve Bank is
empowered under section 45(1) (a) of the Banking Act [Chapter 24:20], to
monitor and supervise associates of banking institutions including their
holding companies.

5.33 As Monetary Authorities, we reiterate that Bank Holding Companies are still
subject to oversight by the Reserve Bank. As such, no person shall obtain
significant shareholding holding in or be appointed to the board/ senior
management of a Bank Holding Company without the approval of the
Reserve Bank.

5.34 The Reserve Bank will continue to apply the consolidated supervision
approach in order to control the risks associated with financial
conglomerates.

Stress Testing

5.35 The Reserve Bank already requires banking institutions to conduct periodic
stress testing, for own internal use, as part of their risk management
practices and processes as stipulated in its various prudential guidelines.

5.36 Going forward, with effect from quarter ending 31 March 2012, every
banking institution would be required to submit stress test results to the
Reserve Bank within 30 days from the end of each quarter.

5.37 Meanwhile, the Reserve Bank will continue to conduct independent stress
tests, using its own methodologies, to gauge the potential vulnerability of
individual banks and the entire banking system.

5.38 The Reserve Bank will hold Prudential Meetings to discuss banking
institutions’ stress test results. Banking institutions that fail stress tests and
have no demonstrable mitigatory measures in place will be subjected to
appropriate supervisory action by the Central Bank.

Enterprise-wide Risk Management

5.39 Banking institutions are again encouraged to manage risk in a coordinated
and integrated way across the entire business. The Reserve Bank is calling
upon banking institutions to build capacity in this regard.

Enhancement of Corporate Governance

5.40 The resurgence of corporate governance ills that be-devilled our financial
services sector during 2003/4 period and caused a near-collapse of the
banking sector is likely to erode financial sector stability and confidence in
the banking system.

5.41 Recent developments at ReNaissance Merchant Bank are a case in point.
Depositors’ funds were siphoned under a well orchestrated and calculated
fraudulent intricate web of related party transactions.

5.42 In view of the corporate governance deficiencies prevalent in ownermanaged institutions, the Reserve Bank wishes to remind the banking sector
that no shareholder with a 10% stake or more shall form part of management
of the banking institution or bank holding company, or be chairperson of the
board.

5.43 All banking institutions are expected to comply with this requirement on an
on-going basis. To reinforce these requirements, the Reserve Bank will reissue enhanced Corporate Governance Guidelines No. 01-2012/BSD,
which will be circulated to the market no later than 31 March 2012.

Credit Reference Bureau

5.44 The Reserve Bank welcomes efforts by Government as announced by the
Minister of Finance in the 2012 National Budget presentation on the need to
establish a Credit Reference Bureau. Its establishment will help the banking
sector to manage the growing credit risk by limiting borrower leverage.

5.45 As Monetary Authorities we once again reiterate calls for all relevant key
players to set up a credit reference bureau.

Disclosure Requirements

5.46 As part of on-going efforts to promote transparency and enhance market
discipline, the Reserve Bank, with immediate effect, shall publish, on its
web-site, on a quarterly basis, the performance of each banking institution.

5.47 The Reserve Bank will, however, discuss with banking institutions’
management, the performance of their respective institutions prior to posting
the same on the web site to ensure accuracy and objectivity of the status
reports.

Prudential Liquidity Ratios

5.48 The Prudential Liquidity Ratios (PLRs) will be raised from the current
25% to 27.5% by 31 March 2012 and 30% by end of May 2012.

FINANCIAL STABILITY ASSESSMENT FRAMEWORK

5.49 Financial stability is regarded as an important economic policy objective in
most countries. The recent global financial crisis has drawn increased
attention on the need for rigorous on-going financial stability assessments.

5.50 There is consensus among policymakers, market practitioners, and
academics that financial system stability is affected by factors endogenous to
the financial system as well as the exogenous factors.

5.51 As such, a comprehensive framework for financial stability assessment
should take into account inter-linkages between the external sector, domestic
sector and the financial sector.

5.52 The COMESA Framework for Assessing and Maintaining Financial
Stability developed in 2009 anchored on three schematic stages: on-going

surveillance, diagnostic assessment and policy action, takes into account the
sectoral interlinkages as shown in the diagram below.

Figure 10: Conceptual Framework for Financial Stability Assessment


5.53 Zimbabwe being a member of COMESA has adopted the COMESA
Framework for Financial Stability Assessment in its entirety.

5.54 Regulatory authorities will henceforth periodically conduct rigorous
assessments of the state of financial stability using Quantitative and
Qualitative methodologies. A wide range of analytical tools and techniques

including macro-prudential analysis, macro-stress testing, and scenario
analysis will be adopted.

5.55 A formal framework for financial stability assessment will:

facilitate early identification of sources of risks (to stability) and of potential
vulnerabilities that could threaten financial stability;
promote rigorous, accurate and systematic assessment of the present degree
of financial stability as well as the outlook ahead;
facilitate the evaluation of ability of the financial system to absorb shocks
should the risks identified materialize;
provide lead time for appropriate policy responses; and
promote adoption of preventive and timely remedial (risk mitigation)
policies and/or restore the system to stability (via resolution of problems)
when preventive and remedial action fail.

5.56 As Monetary authorities, we are mindful of the fact that financial stability is
dependent on the collective stability of all components of the financial
system including financial markets, financial institutions and the financial
infrastructure, as well as the real sector and global developments.

5.57 The intertwining relationships between these financial sub-sectors, the real
economy, and the global financial system, create a dangerous amplification
mechanism and vicious feedback loops that can lead to a crippling effect to
our domestic economy.

5.58 In Zimbabwe, the general belief that “light-touch” regulation and market
discipline for other financial services players other than banks would suffice,
was proved wrong in the case of ReNaissance Merchant Bank, which
highlighted the need for “a systemic dimension” to financial sector
regulation.

5.59 The existence of fragmented supervision between the Central Bank and
other financial sector regulators presents potential loopholes and fertile
ground for regulatory arbitrage to the detriment of financial sector stability.

5.60 Cognisant of the intricate inter-connectedness of all facets of the financial
system, the real economy and the global financial markets, and in a bid to
close the regulatory gaps, the sectoral Supervisory Authorities in Zimbabwe
have constituted a Multi-disciplinary Financial Stability Committee.

Multi-disciplinary Financial Stability Committee

5.61 The Reserve Bank, the Insurance and Pensions Commission (IPEC), the
Securities Commission (SEC), and the Deposit Protection Board (DPB) have
now jointly constituted a Multi-disciplinary Financial Stability Committee.

5.62 The Committee shall be chaired on a quarterly rotational basis by the four
financial services regulators, namely Reserve Bank, IPEC, SEC, and the
Deposit Protection Board. The Reserve Bank will provide the Secretariat
Services to the Committee.

5.63 The financial services regulators have already signed a Memorandum of
Understanding (MoU) to formalise their co-operation.

Contingency Planning

5.64 An appropriate framework for financial stability assessment requires policy
actions to be taken in the event of potential risks crystallising.

5.65 Thus, the Reserve Bank and other key stakeholders will be working on a
framework for contingency planning and systemic crisis management
incorporating a set of identified policies, actions and processes necessary for
the prevention, management and containment of banking systemic distress.

5.66 Banking institutions will be required, in terms of the framework, to establish
contingency plans for the management and control of risk exposures. The
plans will also provide preventative measures and promote proactive
management and control of any business interruption.

BASEL II IMPLEMENTATION

5.67 The Reserve Bank has noted that most banking institutions have made
significant progress in their Basel II preparations. The Reserve Bank will
continue to engage banks in order to facilitate smooth implementation of
banking institutions’ Basel II plans as well as provide necessary guidance
through seminars and workshops.

5.68 The Reserve Bank has recalibrated the regime of provisions for loan losses
to bring them in line with the Reserve Bank’s 10-tier Supervisory Rating
System contained in Guideline No.1-2011/BSD: Technical Guidance on the
Implementation of the Revised Capital Adequacy Framework in Zimbabwe.
5.69 The revised provisioning levels, which become operational with effect from
1 March 2012 are meant to ensure that loan loss provisions remain
sufficient to absorb expected losses.

MICROFINANCE INSTITUTIONS

5.70 There are 157 licensed microfinance institutions operating under the
supervision of the Reserve Bank. The microfinance sector in Zimbabwe is
currently facing a number of challenges including insufficient funding,
inadequate IT infrastructure and absence of a Credit Reference Bureau.

5.71 As part of the initiatives to improve the availability of funding to the sector,
the Zimbabwe Association of Microfinance Institutions (ZAMFI),
spearheaded the establishment of a microfinance wholesale fund. The fund is
expected to provide a source of affordable wholesale funding for the
Microfinance Sector.

5.72 The Reserve Bank is currently working on an appropriate Performance
Evaluation Framework to enable evaluation of the impact of microfinance
activities and facilitate appropriate policy intervention.

Undesirable Methods of Conducting Business

5.73 The Reserve Bank continues to receive complaints from microfinance clients
regarding unethical and undesirable business practices such as inadequate
disclosure of business conditions and abusive debt collection practices
including disposal of pledged collateral without following due legal
procedures.

5.74 As Supervisory Authorities, we are also concerned that some Microfinance
Institutions are illegally taking deposits from members of the public, which
are disguised as bilateral loans, thus posing a threat to financial stability.

5.75 Moneylenders are not deposit taking institutions. Members of the public are
hereby advised against dealing with such unscrupulous institutions.

5.76 Microfinance Institutions are sternly warned that failure to comply with laws
and regulations when conducting microfinance activities will lead to the
imposition of appropriate supervisory action, including cancellation or nonrenewal of licences.

Microfinance Core Client Protection Principles

5.77 Microfinance institutions are once again urged to observe the internationally
agreed Core Client Protection Principles (CCCP) for microfinance in
conducting their microfinance business.

Timely Renewal of Microfinance Licences

5.78 Microfinance Institutions are hereby reminded that operating licences should
be renewed at least two months before date of expiry. Failure to renew the
operating licence before expiry will render the activities of the concerned
microfinance illegal.
Draft Microfinance Bill

5.79 A Draft Microfinance Bill is currently under consideration by the Reserve
Bank, the Ministry of Finance and other microfinance stakeholders. The Bill
once promulgated is expected to address some of the problems facing the
sector such as tenure of licences, consumer protection issues and transparent
pricing in line with international developments in the microfinance sector.

FINANCIAL INCLUSION


5.80 There is growing consensus that financial inclusion - access to financial
services at a reasonable cost to the majority of the population - is critical for
economic growth and development, poverty alleviation and the attainment of
the Millennium Development Goals (MGDs).

5.81 The Reserve Bank has keen interest in promoting an inclusive financial
system and is working closely with key stakeholders in that regard.

5.82 As Monetary Authorities, we are pleased to note the increasing number of
banking institutions venturing into mobile banking. As at 31 January 2012,
fifteen (15) banking institutions had introduced mobile banking products in

partnership with mobile network operators in majority of the cases as shown
below.

Table 6: Mobile Banking Products Introduced By banks
Institution
Mobile Network
Operator
Mobile Banking Platform / Brand
Name
1.
FBC Bank
Net One/ Telecel
ZIPIT */ One Wallet
2.
Kingdom
Telecel
Kineto Mobile/Kingdom Cellcard
3.
POSB
Net One/ Telecel
ZIPIT
4.
CABS
Net One/ Telecel
ZIPIT / Textacash
5.
Metropolitan
Net One/ Telecel
ZIPIT, Metbank mobile
6.
FBC Building Society
Net One/ Telecel
ZIPIT
7.
Interfin
Net One/ Telecel
ZIPIT
8.
Barclays
Inbuilt Plaform
9.
TN Bank
Econet
Ecocash
10. Tetrad
Telecel
e‐Mali
11. CBZ
All
E‐Tranzact /CBZ mobile/ ZIPIT
12. Stanchart
Net One/ Telecel
ZIPIT
13. Trust
All
E‐Tranzact/Bank at Ease
14. ZB
E‐Solutions
15. ZABG
E‐Solutions
* ZIPIT * ‐ ZIMSWITCH based platform. Currently eight banks are on the platform with a target
of including all banks which are members of Zimswitch.

5.83 The Reserve Bank requires all banking institutions to put in place
appropriate risk management structures and processes to facilitate on-going

monitoring of all risks associated with mobile banking products and other
electronic service delivery channels.

5.84 All banking institutions are required to seek prior approval of the
Reserve Bank before launching new products. As part of the approval
process, the applicant bank is required to secure the relevant sign offs by
their new product development committee or department, risk management,
internal audit, compliance and the board. Where external parties are
involved, appropriate Service Level Agreements should be put in place to
stipulate the roles and responsibilities of all parties.

Lender of Last Resort (LOLR)

5.85 As Monetary Authorities, we remain indebted to the Minister of Finance for
his support in concerted efforts geared at resuscitating the lender of last
resort (LOLR) function of the Central Bank. This is evidenced by the recent
injection of US$20 million to further boost the LOLR facility. This amount
is over and above the existing US$7 million. Once the funds have been
transferred to the Reserve Bank’s accounts, banks with the requisite
collateral can start accessing it. Additionally, the advanced negotiations with
Afreximbank are envisaged to culminate in the further boosting of the LOLR
facility by an additional US$80 million.

5.86 We would also like to implore the market players to deal amongst
themselves as we continue to observe that while some banks are facing

liquidity challenges, others are sitting on large balances on their RTGS
accounts or in their Nostro accounts.

Nostro Accounts

5.87 A worrisome development has emerged in the banking sector, whereby
some banks are maintaining huge idle balances in their Nostro accounts.
This development has occurred at a time when liquidity conditions have
remained tight in the domestic economy. Against the background of this
regrettable development, we urge banks to release some of these
balances held with foreign banks to the local market to improve
the liquidity situation and support key productive sectors of the
economy.

STATUTORY RESERVE BALANCES

5.88 In his Press Statement on the Post Budget Developments in the Economy,
the Honorable Minister of Finance announced that Treasury would be
issuing instruments to deal with the outstanding amounts of Statutory
Reserve balances at the Reserve Bank. These amounts to US$83.4 million.
The Ministry of Finance in close collaboration with the Reserve Bank is
working on the appropriate modalities.

6.
NATIONAL PAYMENT SYSTEMS

6.1
During 2011 the financial system witnessed a significant growth of
electronic transactions with US$ 34 billion achieved representing an increase
of 56% from US$22 billion recorded in the 2010.

Real Time Gross Settlement (RTGS) System


6.2
Total RTGS system values amounted to US$33 billion for the year 2011, an
increase of 51% from US$21 billion recorded in the year 2010. The total
volume of transactions for the same period were 2 million and 1.6 million
respectively representing a 28% increase as shown in figure below.

RETAIL PAYMENT STREAMS

Cheque Payment Stream

6.3
The cheque payment stream remained available to a selected group of
customers on a Know Your Customer basis consistent with the risk profile
of the payment stream.

6.4
A total of 259 000 transactions valued at US$65 million were cleared in
2011, compared to 174 000 transactions valued at US$42 million in 2010.
This represents increased values and volumes of 52% and 49%, respectively.

Automated Teller Machines (ATMs)

6.5
Transactions processed through ATMs amounted to US$905 million during
the year 2011, an increase of 190% from US$312 million recorded for in the
year 2010. ATM transactions constituted 56% of the total retail transactions
in terms of value, indicating a high propensity of cash usage by the
transacting public.

6.6
We therefore, encourage the market to move towards the use of other
electronic means of payment which are now available in the country to
reduce the risk of moving around with cash.

Point of Sale (POS)

6.7
In 2011, POS machines recorded an aggregate of 4.2 million transactions
when compared to 1.3 million in 2010. The values registered increased
concomitantly by 384% to US$249 million as compared to US$51 million.

6.8
Within this context, banking sector players and key stakeholders are urged to
increase the population and spread of POS machines throughout the country
to facilitate transactions of a retail nature and for the effective reaching out
of communities in outlying areas.

Mobile Payments

6.9
Reflecting increased use of mobile banking facilities, the value of mobile
payment transactions increasing by 575% to US$8.1 million in 2011 from

US$1.2 million in 2010. Similarly, the volume of mobile payment
transactions increased phenomenally by 446% to 2.3 million in 2011from
0.4 million in 2010

Internet Banking

6.10 Internet banking constitutes 30% of the total retail values. During 2011,
internet values increased significantly by 132% to US$532 million from
US$230 million in 2010. Concomitantly, volumes increased from 85 000 in
2010 to 196 000 in 2011.

Measures to Alleviate Market Liquidity Challenges

6.11 The Money Market is currently inundated with challenges resulting from the
worsening liquidity, delayed cash payments and illegal externalization of
cash.

6.12 In line with the Honourable Minister of Finance’s Press Statement on Post
Budget Developments in the Economy, issued on 25 January 2012, there is
need to institute staggering payments for High Value Transactions in order
to allow banks sufficient time to prepare for such transactions.

6.13 In order to facilitate country-wide smooth payment transactions as well as
curbing illegal externalization of cash, all Financial Institutions are being
called upon to moderate instant cash withdrawals to a maximum of
US$10,000.

6.14 Cash withdrawals for High Value Transactions that are above US$10,000
would require the following Notice Periods;

Table 7: Notice Periods for High Value Cash Withdrawals
Amount
USD
Required Notice Period to the Bank
10,001 – 20,000
24 hrs (1 working day )
20,001 – 30,000
48 hrs (2 working days)
30,001 – 40,000
72 hrs (3 working days)
40,001 – 50,000
96 hrs (4 working days)
50,001 and above
120 hrs (5 working days)

6.15 To compliment these measures, the banking public is strongly encouraged to
use the Real Time Gross Settlement system (RTGS), Credit Cards and other
approved electronic money transfer systems in settling their day-to-day
financial transactions.

7.
Tightening of Anti Money Laundering Measures

7.1
In line with the Reserve Bank’s mandate under the Bank Use Promotion and
Suppression of Money Laundering Act [Chapter 24:24] and pursuant to the
country’s international AML / CFT obligations, the Reserve Bank is
stepping up the fight against money laundering.

7.2
The Reserve Bank has an obligation to ensure that the country’s financial
system does not become either a safe haven or conduit for proceeds of crime
as this would tarnish the country’s image.

7.3
The advent of dollarization and the country’s predominantly cash economy
have opened up the country to increased money laundering risk from
criminals, both local and foreign, both individuals and organized syndicates.

7.4
The Reserve Bank is responding to the increased threat by tightening antimoney laundering measures to ensure that banks and other designated
institutions comply with AML / CFT requirements to prevent the institutions
from being used to facilitate money laundering.

7.5
The law requires banks and other designated institutions such as insurance
companies, asset managers, stockbrokers, and casinos to implement stringent
anti money laundering measures and to report all suspected cases of money
laundering and terrorist financing to the Central Bank’s financial intelligence
unit.

7.6
The Reserve Bank has noted with concern that some banks and designated
institutions are not complying with their AML /CFT statutory obligations
and, in particular, are not submitting Suspicious Transaction Reports to the
financial intelligence unit. The Reserve Bank would like to sound a warning
that all the delinquent institutions will soon be brought to book and dealt
with in terms of the law.

7.7
Zimbabwe’s membership of the Eastern and Southern Africa Anti Money
Laundering Group (ESAAMLG) obliges it to implement the FATF “Forty
plus Nine” recommendations. These are measures designed to strengthen
and harmonize member countries’ legal and institutional AML / CFT

frameworks to ensure a coordinated regional and international approach in
the fight against money laundering and terrorist financing.

7.8
The Reserve Bank is working closely with Government and with national
law enforcement agencies to implement the FATF standards and ensure that
the country does not become the weakest link in the regional and
international fight against money laundering and terrorist financing.

8.
POLICY ADVICE

ESTABLISHMENT OF AN INTERNATIONAL FINANCIAL CENTRE

8.1. The Honourable Minster of Finance in his 2012 National Budget announced
the concept of cluster-driven growth strategy in which provinces will be
developed according to their respective resource endowments. Zimbabwe
has over the last decade been receiving adverse publicity a situation that has
been compounded by the enactment of the repressive Zimbabwe Democracy
Economic Recovery Act 2001, which has aggravated the deterioration in the
country’s macroeconomic conditions.

8.2. It is pleasing to note that Government has already agreed to the
establishment of an International Financial Centre. In this respect, the
Ministry of Finance together with the Reserve Bank are seized with the
drafting of the Legal and Administrative Framework. The IFC will provide a
conducive environment for foreign direct investment through the free flow
of capital and improved market liquidity.

GOLD TRADING POLICY

8.3. Following the liberalisation of trade in gold in February 2009, Monetary
Authorities have noted with great concern, an increase in illegal trade in
Gold that has also given birth to rampant smuggling of our country’s
precious minerals.

8.4. Regrettably, numerous individuals and companies that are in possession of
Gold Buying Permits are misusing these permits and smuggling this
precious mineral, thereby prejudicing the National Economy of the export
earnings.

8.5. In view of this negative development, as Monetary Authorities, we take this
opportunity to remind the Mining Sector to adhere to the current policy
on trade of gold.

SECURITISATION OF ZIMBABWE ASSETS

8.6. In view of persistent liquidity challenges that have conspired with limited
access to offshore credit lines to hamstring the attainment of fast paced
growth, serious considerations must be accorded to asset securitization as a
viable option to address recurrent liquidity challenges in Zimbabwe.
Securitization of Zimbabwe’s assets can be structured in such a way that
financial resources can be mobilized in aid of the following;

i.)
Mobilize resources for the development of infrastructure;

ii.)
Raise funds for investment purposes;
iii.)
Settle or restructure national debt;
iv.)
Alleviate liquidity challenges that the financial sector is facing;
v.)
Transform maturity profiles of deposits, from short to medium or long
term;
vi.)
Pool resources that are backed by domestic assets, for sustainable
empowerment of the people.
Special Purpose Vehicle

8.7. The securitization of national assets including mineral resources can be
structured through a Special Purpose Vehicle (SPV). The SPV is a legal
entity specifically and solely created for the purpose of holding the assets
sought to be transferred by the originator and the issuance of securities. It
therefore acts as an intermediary between the originator and investor.

Securitization Anchored on Real Estate

8.8. In Zimbabwe, both residential and commercial real estate are mostly
mortgage free, however, these are illiquid assets. There is, therefore, need to
unlock the economic potential of these assets by securitizing and
transforming them into liquid assets through real estate-backed security
(REBS) that will represent a claim on the cash flows from equity
investments in local companies ear-marked for indigenization. Funds to
purchase these equities can be obtained from offshore sources and backed by
real estate in Zimbabwe.

8.9. The offshore loans can be secured from international investors who are
looking for investments in emerging markets and diversifying from US
dollar backed assets.

8.10. REBS can be based on residential and commercial properties. A residential
property-backed security (RPBS) will be secured by single or several
household real estates in the same neighbourhood. A commercial propertybacked security (CPBS) will be secured by commercial and industrial
properties, such as apartment buildings, retail or office properties, hotels,
private schools, industrial and commercial sites.

8.11. This securitization structure will be private sector driven and voluntary.

8.12. This proposed resource mobilization and investment structure will dilute the
impact of sanctions and bring significant liquidity into the economy, thereby
laying a suitable foundation for economic recovery, whilst indigenizing the
economy.

8.13. This will represent a broad based economic empowerment program which
would also create employment and additional wealth.
Mineral Based Securitization

8.14. Zimbabwe is endowed with vast mineral wealth which remains largely
untapped; in order to unlock value from the country’s mineral wealth,
mining claims can be used as a form of payment to cooperating partners that

clear Zimbabwe’s debt. In this regard mineral claims in the gold, platinum
and ferro-alloys sub sectors can be securitized.

8.15. This option involves external new borrowing by the country to retire the
totality or part of external debt, using identified public assets as collateral.
Valuation of these assets, in foreign currency, gives an indication of how
much the country can borrow under this option. The same concept can be
applied to the post reform agriculture sector.

Agriculture and Mining Mechanization

8.16. The nation will recall that the agricultural mechanization program
spearheaded by the Reserve Bank laid a solid foundation for improved
agricultural production and enhanced the country’s food security. The
program was, however, not completed to cater for all the potential
beneficiaries countrywide. To further consolidate the bold strides attained by
this program, it is our recommendation that the responsible Ministry should
attach prominence to the completion of this program.

8.17. This is particularly so because there are many would- be beneficiaries who
were not accommodated during the agricultural mechanization phases
undertaken with the assistance of the Reserve Bank, yet they have a dying
need of agricultural machinery. Against this background, we urge
Government to resume the mechanization program with the support of
Treasury, through the fine-tuning of the previous phases of the program with

special attention to ensuring equity in terms of geographical or beneficiary
selection.

8.18. In the same vein, the importance of the mining sector in its contribution to
the Gross Domestic Product and the indigenization and economic
empowerment process which should promote the Small to Medium Scale
Entreprises (SMEs) cannot be over-emphasized. Against this background,
we recommend that Government through the appropriate Ministry should
embark on a mining sector mechanization program that will see a
coordinated tie -up of owners of mining claims, producers of machinery and
those who market the minerals.

8.19. The Reserve Bank also urges Local Authorities to move with speed to deal
decisively with the resurgence of cholera and typhoid. Our experience in
2008 with such epidemics makes it very painful when lives are lost
needlessly. The meaningful recovery of the Zimbabwean economy is
centered around the well-being of the generality of the population of which
good health is an important aspect.

9.
CONCLUSION

9.1
The successful orientation of the Zimbabwean economy on a sustained
recovery and growth path requires that the country’s unsustainable external
debt be resolved expeditiously. Delays in the resolution of the country’s
external debt continue to militate against efforts by both the public and

private sectors to mobilize external lines of credit to recapitalize their
operations and finance critical projects.

9.2
An effective debt resolution strategy if timely implemented will undoubtedly
unlock the much needed external lines of credit under any monetary regime.
The resolution of the country’s external debt is thus a vital cog in adequately
complementing policy measures geared at attaining an all-encompassing
economic recovery process that is inclusive and sustained.

9.3
In addition, the need for an adequately capitalized financial system in
supporting private sector led growth cannot be over-emphasized. As
Monetary Authorities we, therefore, urge banking institutions to ensure that
their operations are adequately capitalized in order to meaningfully mobilize
savings for on lending to the productive sectors of the economy and ensure
financial sector stability.

9.4
We also urge banking institutions to move with the times and embrace new
financial products such as mobile banking and e-banking in order to
effectively reach out to the unbanked sections of our country that reside in
outlying areas where the physical banking infrastructure is under-developed.

THANK YOU

DR. G. GONO
GOVERNOR
RESERVE BANK OF ZIMBABWE
JANAURY 2012