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Harare Bureau
THE Reserve Bank should come up with early warning signs systems to prevent banking sector distress, after a local research institution found out that the sector suffered three distress shocks between 2012 and 2014.

The Zimbabwe Economic Research Unit, in its economic barometer volume 15, said the Banking Sector Fragility Index shows that the financial sector has had three protracted periods of distress since June 2012.

The economic review study, largely focusing on developments in recent years, says that Zimbabwe’s banking sector entered medium distress in June 2012.

Zeparu said this phase of distress coincided with the closure of Genesis Investment Bank and placement of Interfin Bank under curatorship on June 11, 2012. However, the sector had recovered from the shock by end of June.

The second medium distress period started in November 2013 and ended in May 2014. During this period, Trust Bank Corporation closed down; in December 2013, barely a month after the start of the distress period.

Zeparu said according to its Banking Sector Fragility Index, since June 2014 Zimbabwe’s banking sector slid into high distress, and it is during this period that Capital Bank Corporation was closed on 4 June 2014.

Although failing banks have been stamped out of the banking system, high non-performing loans (now around 16,5 percent) and undercapitalised banks remain a major threat to the country’s banking system.

Zeparu noted that the central bank seems to have been reasonably quick in instituting corrective measures in periods of banking sector distress.

“However, there is need to build robust early warning systems that would enable instituting corrective measures well before the start of distress.”

The domestic financial sector has since dollarisation been rocked by the twin force of tight liquidity and non-performing loans, compromising viability of financial institutions and their capacity to support economic growth.

The RBZ has since established a company called Zimbabwe Asset Management Company to takeover non-performing loans to reduce the burden of NPLs from banks and allow them to give loans to productive sectors.

Zamco has assumed $100 million bad loans since its inception, but might have to deal with bad loans amounting to over half a billion dollars.