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Zimbabwe Puts Pressure on Banks With Lofty Capital Threshold

Zimbabwe's central bank raised the minimum capital threshold for banks on Tuesday, putting pressure on a number of institutions already reeling from crippling liquidity constraints.

The capital requirement for commercial and merchant banks will double to $25 million by December this year before soaring to $100 million by June 2014.

Mortgage lenders with a current mandate of $10 million, are also required to ramp up their reserves by December this year and have at least $80 million two years later.

Reserve Bank of Zimbabwe chief Gideon Gono announced in a monetary policy statement that the move was meant to instill stability in the financial sector and get rid of poorly capitalized banks.

Gono urged institutions that may fail to meet these requirements to explore mergers while economic analysts warned that some of them may be forced to shut down.

"Mergers and acquisitions have become a major strategic option aimed at entrenching a strong, efficient and diversified financial sector that ensures the safety of depositors' funds," he said.

Gono's policy comes in the wake of bank closures over as many months due to liquidity problems. Zimbabwe currently has 25 banking institutions which the central bank chief believes are too many for the country’s underperforming economy.

The Reuters news agency reports that “the new capital requirements are higher than those in much larger economies such as South Africa, Kenya and Angola.”

Economic analyst Rejoyce Ngwenya of the Coalition for Market and Liberal Solutions said the policy would help weed out unviable banking institutions that pose a threat to depositors.

"If they can't meet that threshold," Ngwenya said, "they will need to go into mergers or simply cede their licenses like any other bank that fails but it's also good for consumers and the marker."

Major commercial banks operating in Zimbabwe include the British-owned Standard Chartered and Barclays Bank as well as Standard and Nedbank of South Africa.