Zimbabwe Central Bank, banks hummer deal on local USD nostros

RBZ governor Dr John Mangudya

HARARE – Bank depositors should no longer face any challenges in accessing foreign currency from their USD RTGS FCAs after the Reserve Bank of Zimbabwe and local bankers agreed on an amicable solution, Business Weekly can reveal.

For the past year or so some banks were declining to honour local US dollar payments telling clients they cannot make cash withdrawals or foreign payments if the source of funds was from local USD RTGS FCAs.

The argument was that these funds, which according to the central bank amounted to about US$150 million, were unfunded.

Indeed, the RBZ acknowledged the presence of such funds, explaining that they represent the residual on the domestic US dollar settlement platform established during the dollarisation era.

“This virtual US dollar at the bank represent the residual forex balances that were in the system when we crossed over from the 100 percent dollarisation era in February 2019,” RBZ governor Dr John Mangudya told delegates at the Zimbabwe National Chamber of Commerce (ZNCC) held mid-December last year.

Dr Mangudya, however, thought the issue should not be used to inconvenience customers as settlement of bank transactions is an activity for back office staff.

Banks, however, remained adamant until a solution was thrashed out. According to Dr Mangudya, settlement of the USD RTGS FCAs should no longer be an issue as such balances were removed from the banking system.

In an agreement with banks late January, the central bank issued a United States Dollar financial instrument of up to six months to banks holding these “legacy virtual United States dollars”.

The RBZ will then repurchase the instruments and give value over a period of six months.

Under the arrangement, the financial instrument will be at zero percent interest rate and is non-transferable.

In a letter to bank executives, Dr Mangudya said in order to cover the gap, banks will be allowed to retain 10 percent of the 20 percent due to the RBZ under the domestic foreign currency sales surrender requirement.

Prior to this new arrangement, banks were supposed to remit to the central bank 20 percent of all deposits from local USD transactions.

But with the new agreement in place, they can now retain half of the 20 percent until the gap is covered.

All things being equal banks should be able to expunge that instrument by June 2021.

Bankers Association of Zimbabwe president Ralph Watungwa, was in a meeting when contacted for comment, but his deputy Ronald Mutandagayi, confirmed the development and said banks were in agreement.

“We reached an agreement with the central bank and we don’t expect that to be still an issue as the RBZ has also promised to fund any bank that finds itself in a bind.

“All things being equal, we should be able to expunge that instrument by June 2021. Then you end up with one nostro, which is the true nostro by definition, which is money held by a local bank in a foreign bank account,” said Mutandagayi.

With the arrangement now firmly in place banking customers are expected to conduct their business without being inconvenienced.

However, some banks are still not fully in compliance telling customers that they can only make withdrawals subject to availability of cash.

“Its upon availability of cash against local transfer,” a teller with a local bank told this publication after an enquiry.

Market watchers, however, say making cash withdrawals will always remain a challenge as banks have to import from outside the country.

Given the logistical challenges brought by the coronavirus pandemic, bringing physical cash cannot be expected to be smooth, according to Walter Mandeya an analyst with Trigrams Investments.

Last year, the country’s sole gold buying entity Fidelity Printers and Refiners reportedly struggled to pay small-scale gold miners on time as Covid-19 restrictions resulted in limited flights into the country, thereby affecting smooth importation of hard currency cash needed to pay the miners.

A significant amount of physical cash also circulates outside the banking sector in the informal sector which is largely unbanked. Source: Business Weekly