Honour TBs, banks plead

05 Apr, 2019 - 00:04 0 Views
Honour TBs, banks plead

eBusiness Weekly

Kudzanai Sharara
Not honouring Treasury Bills (TBs) maturities will have far reaching adverse consequences on the entire banking sector and the rest of the economy than honouring them, according to local banks’ proposal to the Reserve Bank of Zimbabwe seen by Business Weekly.

At least RTGS$2,2 billion worth of TBs are expected to come to maturity this year and there are fears that the budget constrained Government will resort to rolling them over rather than pay them out.

In his 2019 National Budget Presentation Finance and Economic Development Minister Mthuli Ncube said Government would explore options for restructuring the TBs to longer tenure in consultations with market players.

The Bankers Association of Zimbabwe (BAZ), however, prefers Government pays its dues first and then offer other enticing products afterwards.

“In fact, a default by the Government on sovereign paper is unfathomable,” said BAZ in it proposal.

“It is important to highlight that not honouring the maturities obligations will have far reaching adverse consequences on the entire banking sector, and the rest of the economy than honouring them,” said the grouping.

Analysts agreed saying rolling over is a technical default, which requires impairments charged on the income statement and balance sheet.

“This will affect profitability and capitalisation levels. I would prefer it if Government pays the TBs but offers more lucrative mopping up paper in line with the economic environment like they did in Egypt. That is US dollar-based paper with longer tenures and commensurate interest rates,” said an analyst who requested not to be named.

BAZ said it strongly recommends that TBs maturities be honoured on maturity.  Treasury sources said despite challenges, Government has been honouring some of the TBs that had matured.

“The stock of TBs has actually come further down from the $3 billion that’s we are talking about. We have paid almost $800 million in TBs maturities between October and end of March,” said the source.

BAZ conceded that there is also need to manage the funding pressure on the fiscus considering the forthcoming maturities.

It is further recommended that the Government, through the central bank, pre-emptively introduce a Treasury Bills tender system wherein they will raise the requisite liquidity to settle the forthcoming TBs maturities, said BAZ.

“We also recommend that the TBs tender system, and the overnight window, be used as part of steps towards establishing a market-based reference rate that takes into account inflation expectations.

This recommendation should find favour in Minister Mthuli Ncube, who in his 2019 National Budget Statement suggested that Government will move away from the private placement of TBs to the auction-based system in order to improve transparency, better price discovery, enhance confidence and allow market determined interest rates, thereby building up the yield curve.

If such asset creation is backed by sound lending practice and recourse to the overnight window is available, this will create an enabling environment for credit support for the productive sector, said BAZ.

Analysts said Government must tread carefully before rolling over the TBs.

“Nothing should be by force or by decree. Government survives off business and business off Government. All issues should be subject to mutual agreement/consent otherwise it creates distortions in the market,” said Walter Mandeya an analyst with Trigrams Investment.

“So, no Government should not unilaterally rollover TBs, they should offer it as an option and make it attractive for the people affected, especially in terms of returns.

“Remember we are now in a period of high inflation and the return has to reflect this. You will find that the majority of the TB holders will by default rollover their TBs because of the lack of alternative investments and also to comply with statutory obligations,” said Mandeya.

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