Zimbabwe is to accept movable assets such are machinery, equipment and vehicles, which have up to now been regarded as “dead capital”, as collateral for business to access credit, Central Bank governor John Mangudya said.
He said empirical studies had shown that, in developing economies, 78 percent of the capital stock of businesses is typically in movable assets such as machinery, equipment or receivables, and only 22 percent in immovable property.
“As such, these economic agents, such as SMEs and households, find themselves with ‘dead capital’, in the form of moveable assets which they are unable to utilize as collateral,” he said.
At least 35 countries, including Malawi, South Africa and Zambia, have established collateral registry systems, as a way of promoting the use of movable collateral by lenders in order to increase access to credit.
The benefits of establishing a collateral registry are that it:
Below is an extract on financial sector regulatory framework from Mangudya’s monetary policy statement:
The Bank has made significant progress, towards the establishment of a credit reference bureau (CRB). The adjudication process, which was in line with public procurement rules and regulations, has been completed and the contract for setting up the CRB system was awarded to a renowned company at a cost of around US$1.8 million. The credit reference databank will be housed at the Bank. All banking institutions and microfinance institutions will be mandated to provide credit information both positive and negative, to the databank. In terms of the model adopted by the Bank, all private credit bureaus will be able to access, at a fee, information from the databank.
Due to the confidentiality nature of banking sector information and to ensure the integrity of the credit reference databank, any person seeking to conduct any activity which involves the collection and dissemination of credit information from banking institutions, deposit taking microfinance institutions and microfinance institutions should conform to minimum requirements set by the Reserve Bank.
In this regard, the Bank shall accredit private credit reference bureaus to enable them to also collect and/or obtain credit information from the financial institutions.
Empirical studies have shown that, in developing economies, 78% of the capital stock of businesses is typically in movable assets such as machinery, equipment or receivables, and only 22% in immovable property (Alvarez de la Campa, 2011). As such, these economic agents, such as SMEs and households, find themselves with “dead capital”, in the form of moveable assets which they are unable to utilize as collateral.
It is against this background that more than 35 countries across the world have established collateral registry systems, as a way of promoting the use of movable collateral by lenders in order to increase access to credit. Notably, African countries that established collateral registries include Burundi, Ghana, Kenya, Lesotho, Liberia, Malawi, Nigeria, Sierra Leone, South Africa and Zambia.
The benefits of establishing Collateral Registry are:
Towards this end, the Bank is working on measures to enhance the range of acceptable and qualifying collateral security in line with international best practices through the establishment of a collateral registry for movable property such as machinery, automobiles, inventory, and account receivables, among others.
The Bank has also created a unit within its structures that will file notices of security interests in qualifying movable properties and determine priority in a borrower’s collateral, so that lenders find movable property as acceptable security.
Further to my July 2015 Monetary Policy Statement, I am pleased that amendments to the Banking Act and the Reserve Bank Act have been passed in both Houses of Parliament and now await Presidential assent. The new regulatory framework encompasses a comprehensive framework that will strengthen corporate governance and risk management within banking institutions. The new framework has also, amongst others, promotes good governance by punishing those that abuse depositors funds, enhanced the oversight role of the Bank and empowered the Bank to take prompt corrective action in problem bank resolution.
This enhanced framework will complement the Bank’s efforts to ensure a sound financial system and to provide the necessary confidence to the banking public.
As stakeholders would be aware, a number of Auditing and Financial Reporting Standards have been revised and re-issued since the Global Financial Crisis. The changes in auditing standards are aimed at increasing transparency, accountability and ethical behaviour of auditors; while the review of International Financial Reporting Standards (IFRS) are expected to bring closer alignment with the prudential impairment standards, timely recognition of expected credit losses, robust the disclosure regime and revenue recognition, among other things.
Banking institutions and their respective auditors should prepare banking institutions and their respective auditors for transitioning, in light of the implementation challenges that the market will face. The standard setting bodies have acknowledged that implementation of the standards may prove operationally challenging and costly and may require significant lead-time to implement.
In this regard and in view of the need to ensure consistent implementation of standards, the Reserve Bank is working with the Public Accountants & Auditors Board (PAAB) in coming up with the implementation road map for the new and revised standards.
In view of the need to continuously enhance and clarify the regulatory framework to the market, the Bank will be issuing the Oversight Framework and Recognition Criteria, as well as the Electronic Payments Guidelines before the end of the first quarter of 2016. The introduction and operationalization of these guidelines will help in fostering continued financial stability and effective risk management in the payment systems.
The Basel Committee on Banking Supervision developed a framework for the supervision of Domestic- Systemically Important Bank (D-SIBS) in 2012 due to the adverse side-effects of externalities they impose on the local economy, should they fail. The process of identifying these D-SIBS takes into account the following:
The framework recommends two approaches to dealing with D-SIBS, namely increasing the loss absorbency capacity of the D-SIBS through increased capital and intensive supervision. In line with the Basel Committee on Banking Supervision recommendations, the Reserve Bank shall develop a banking sector specific framework for identifying and dealing with D-SIBS by 30 June 2016.
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