RESERVE Bank of Zimbabwe (RBZ) Governor John Mangudya on Thursday said the interbank market, expected to enhance banks’ ability to extend liquidity reprieve to each other would resume by the end of this month.
The interbank market has not been functional since 2009 when the country adopted use of multi-currencies but Mangudya told journalists on the sidelines of a Confederation of Zimbabwe Industries (CZI) Zimbabwe Economic Outlook 2015 Symposium that most banks in the country had already signed up to the idea.
“We delayed the resumption of the interbank market to allow banks to first go through the papers with their lawyers. It’s more of a members’ club and it operates through agreements.” he said.
“I am glad to say that only two banks are left to sign the papers and we are expecting the interbank market to be operational by the end of this month,” added Mangudya.
Government, which set January 01, 2015 as the deadline for the resumption of the interbank market, last year received a $100 million facility from the Afreximbank to revive the market which has been dormant since 2008.
An interbank market is a platform through which banks extend loans to one another for a specified term. Most interbank loans are for maturities of one week or less, the majority being overnight. Such loans are made at the interbank rate.
Banks are required to hold an adequate amount of liquid assets, such as cash, to manage any potential bank run-ins by clients.
If a bank cannot meet liquidity requirements, it will need to borrow money from the interbank market to cover the shortfall.
Some local banks have been struggling with liquidity challenges since 2009 when the country adopted a multiple currency system in place of its local currency that was rendered worthless by hyperinflation.
The tight liquidity conditions have resulted in high interest rates which the government hopes can be lowered by the resuscitation of an interbank market anchored by a well-capitalised central bank.
Finance minister, Patrick Chinamasa, has previously said only banks which are financially healthy and not struggling will participate in the facility.