HARARE – The Reserve Bank of Zimbabwe (RBZ) says more than a fifth of the country’s financial institutions are under-capitalised, risking depositors’ funds in the event that a crisis hits the banking sector.

The unnamed financial institutions failed to court suitors under a recapitalisation exercise ordered by the RBZ two years and which was necessitated by the need to improve the banking sector’s liquidity following the adoption of the multiple currency system.

The financial institutions were given until December 31 last year to inject fresh capital.

“As at 31 December 2010, nineteen (19) out of 24 banking institutions (excluding POSB, Intermarket Banking Corporation and the defunct NDH Merchant Bank) were in compliance with the prescribed minimum paid-up capital requirements,” RBZ governor Gideon Gono said last week.

He did not name the affected financial institutions, except to say that all asset management companies had met the minimum paid-up equity capital requirement of $500 000.

This left the market awash with speculation as to which among the remaining institutions – 14 commercial banks, five merchant banks and four building societies – were in distress and needed urgent recapitalisation.

Under the new capitalisation thresholds, the RBZ requires commercial banks to have a minimum capital threshold of US$12.5 million.

“In order to consolidate the current improving stability in the financial sector, it has become necessary that the deadline for paid-up capital thresholds be further extended to 30th of June 2011,” Gono added.

The news that several banks were in distress first surfaced last month rekindling debate whether the country is over-banked.

Analysts say that with its small population, Zimbabwe only requires a minimum of five and a maximum of 10 banks.

The country currently has more than 40 financial institutions that are scrambling for a shrinking cake.

By Zimonline