According to the Newsday, if last week’s announcement by Reserve bank governor Gideon Gono has anything
to go by banks participating in interbank lending will receive a major boost in
their coffers soon.
Gono says ‘banking institutions had committed themselves to
repatriate $200 million for on-lending to the productive sectors of the economy
after they were directed to maintain a maximum of 25% of their foreign currency
account balances in offshore nostro accounts’.
@NewsDayZimbabwe
@NewsDayZimbabwe
Our local banks have been hit by a wave of cash shortages with has resulted in the resurfacing of meandering queues over major cities in Zimbabwe particularly in Harare. The solution by the Reserve bank governor is significant to a re-boost of the banking sector. So how different is Interbank lending to bank to client lending.
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| Reserve Bank Governo Gideon GonoImage courtesy of
http://img.thezimbabwean.co.uk/310_201_Gono.jpg
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Well for starters bank lend to each other in large volumes at low cost for periods ranging from overnight to a few months. These interbank loans are the marginal source of funds for many banks.
Even for banks that are mostly funded by deposits, interbank loans may be a critical source of additional funds.
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| Cash shortage nightmares...Image courtsey of
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In other words banks are seen as low risk borrowers than customers because banks are seen as low‐risk borrowers.
The occurrence of interbank lending is a major
highlight of how liquid a bank becomes at a particular point in time.
In Zimbabwe this revelation will not only aid
banks in receiving much needed cash but boost confidence in banks once again.
Interbank lending resolves temporary imbalances of supply
and demand of cash in the country.
Where most Zimbabweans are borrowing loans from banks like BanAbc to build houses and purchase vehicles, an imbalance in cash results because on any particular day, some banks receive more payments than expected, while others receive less than expected.
Where most Zimbabweans are borrowing loans from banks like BanAbc to build houses and purchase vehicles, an imbalance in cash results because on any particular day, some banks receive more payments than expected, while others receive less than expected.
Some banks face an unexpected demand for
loans while other banks experience the opposite pattern. Lending then comes to the aid of banks to offset
these imbalances.
Similarly if a bank is
too liquid the extra cash holdings waste resources that could be lent profitably elsewhere.
In Zimbabwe this
revelation will not only aid banks in receiving much needed cash but will
ensure banks support each other in times of need.
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