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"IF I can make it in Zimbabwe, I'll make it anywhere," is a catch line that has been embraced as a celebration by many Zimbabweans who have managed to survive and even succeed despite all the challenges the country is facing especially economically.
It’s not easy to live and succeed in Zimbabwe at the moment.
The phrase can also be used by Zimbabwean banks that have managed to report profits despite all the odds against them.
International bank Barclays, partly owned by Barclays Africa/Absa, last week reported that it was operating profitably. This week CBZ, the country's biggest bank, also reported profits and even declared a dividend for good measure.
Companies - including banks - are expected to make profits, so some may consider what these banks have achieved not as extraordinary but the expected. However, when you consider the environment these companies are operating in, you begin to understand and appreciate their achievements.
One banking executive said "show me a country where banks can survive without an interbank market and I will show you Zimbabwe". For the past four to five years Zimbabwean banks have operated without an interbank market. Worse still, for the same period local banks have been operating in an environment where there is no lender of last resort.
You just have to give it to the Zimbabwean banks because this is certainly not a mean feat. To those in doubt, let me highlight the functions and importance of the interbank market and that of the lender of last resort.
The interbank lending market is a market in which banks extend loans to one another for a specified term. Banks borrow and lend money in the interbank lending market in order to manage liquidity and satisfy regulations such as reserve requirements.
Without a functional interbank marketm banks will be left vulnerable to panics that might result in massive withdrawals called run on banks.
A bank that is short of say $10 000 to pay a depositor might collapse if there is no interbank market or lender of last resort to cover the shortfall. Strains in interbank lending markets led to a financial crisis during 2007.
At the same time lender-of-last-resort interventions can help contain financial instability and are therefore a key component of the central bank’s policy arsenal. It has been recognised for well over a century that the central bank must intervene as “lender of last resort” in a crisis.
Walter Bagehot, the late English author, explained this as a policy of stopping a run on banks by lending without limit. In the absence of a lender of last resort, banks can easily collapse if there is a mismatch in their balance sheets.
During the recent global financial crisis the Federal Reserve even expanded its lender of last resort function beyond the country's borders.
During the crisis the Fed expanded swap lines with industrial country and emerging market central banks. In several cases, limits on the sizes of these swaps were removed, allowing non-US central banks such as the European Central Bank and Swiss National Bank to supply financial markets with potentially unlimited quantities of dollars.
The International Monetary Fund - itself the improbable product of a visionary postwar exercise in international political cooperation - is the closest thing we have to an international lender of last resort.
In recent decades the IMF has intervened in emerging and developing countries. Enhancing its lending capacity has actually been high on the agenda of policymakers seeking to address the global financial crisis.
Nonetheless, the recent global financial crisis has underlined both the importance and the non-traditional nature of the lender-of-last resort function in a financially globalised world.
It is against this background that you have to give it to Zimbabwean banks for operating for so long without these integral components of the financial system.
- Fin24
*Malcom Sharara is Fin24’s correspondent in Zimbabwe. Views expressed are his own.
It’s not easy to live and succeed in Zimbabwe at the moment.
The phrase can also be used by Zimbabwean banks that have managed to report profits despite all the odds against them.
International bank Barclays, partly owned by Barclays Africa/Absa, last week reported that it was operating profitably. This week CBZ, the country's biggest bank, also reported profits and even declared a dividend for good measure.
Companies - including banks - are expected to make profits, so some may consider what these banks have achieved not as extraordinary but the expected. However, when you consider the environment these companies are operating in, you begin to understand and appreciate their achievements.
One banking executive said "show me a country where banks can survive without an interbank market and I will show you Zimbabwe". For the past four to five years Zimbabwean banks have operated without an interbank market. Worse still, for the same period local banks have been operating in an environment where there is no lender of last resort.
You just have to give it to the Zimbabwean banks because this is certainly not a mean feat. To those in doubt, let me highlight the functions and importance of the interbank market and that of the lender of last resort.
The interbank lending market is a market in which banks extend loans to one another for a specified term. Banks borrow and lend money in the interbank lending market in order to manage liquidity and satisfy regulations such as reserve requirements.
Without a functional interbank marketm banks will be left vulnerable to panics that might result in massive withdrawals called run on banks.
A bank that is short of say $10 000 to pay a depositor might collapse if there is no interbank market or lender of last resort to cover the shortfall. Strains in interbank lending markets led to a financial crisis during 2007.
At the same time lender-of-last-resort interventions can help contain financial instability and are therefore a key component of the central bank’s policy arsenal. It has been recognised for well over a century that the central bank must intervene as “lender of last resort” in a crisis.
Walter Bagehot, the late English author, explained this as a policy of stopping a run on banks by lending without limit. In the absence of a lender of last resort, banks can easily collapse if there is a mismatch in their balance sheets.
During the recent global financial crisis the Federal Reserve even expanded its lender of last resort function beyond the country's borders.
During the crisis the Fed expanded swap lines with industrial country and emerging market central banks. In several cases, limits on the sizes of these swaps were removed, allowing non-US central banks such as the European Central Bank and Swiss National Bank to supply financial markets with potentially unlimited quantities of dollars.
The International Monetary Fund - itself the improbable product of a visionary postwar exercise in international political cooperation - is the closest thing we have to an international lender of last resort.
In recent decades the IMF has intervened in emerging and developing countries. Enhancing its lending capacity has actually been high on the agenda of policymakers seeking to address the global financial crisis.
Nonetheless, the recent global financial crisis has underlined both the importance and the non-traditional nature of the lender-of-last resort function in a financially globalised world.
It is against this background that you have to give it to Zimbabwean banks for operating for so long without these integral components of the financial system.
- Fin24
*Malcom Sharara is Fin24’s correspondent in Zimbabwe. Views expressed are his own.
