Banks seek Chinese help…as Commerzbank shuts down nostro accounts
THE cash crunch that has wreaked havoc in Zimbabwe’s crisis-torn economy could worsen after the Germany-headquartered Commerzbank cut off ties with local financial institutions due to sanctions placed on the country by the United States government.
This development has largely affected US dollar transactions, with reports suggesting that many businesses and individuals were finding it difficult to move greenbacks in and out of Zimbabwe.
Commerzbank’s decision has also affected offshore cash holdings for most banks, whose situation has not been helped by the worsening liquidity crisis afflicting the country.
It is proving to be even more difficult for companies trying to move cash outside the country for imports and other payment obligations, as they are being turned away by banks despite having their own cash for the payments.
Banking industry executives said Commerzbank, which has a footprint in 50 countries and a network of 1 050 branches and 90 advisory centres across the globe, had been the major correspondent bank for almost all local financial institutions.
A correspondent bank is a financial institution that provides services on behalf of another, and helps facilitate international transactions through nostro accounts, which are held by domestic banks with foreign financial institutions for the purposes for paying for imports.
Bankers said many of the affected banks were now seeking support from the Bank of China, which has agreed to take over all correspondent bank functions for US dollar offshore transactions.
Others were said to be in discussion with Pan African bank, Ecobank International.
This week, bankers said there was already a gridlock of international payments due to Commezbank’s pullout.
There have been fears that the high demand for cash by local banks could fuel money laundering, and Commerzbank had become nervous with any exposure to Zimbabwe after being slapped with a US$1,4 billion fine for processing transactions that violated US anti-money laundering regulations and Washington’s economic sanctions regime on a number of countries and their leaders.
Zimbabwe is among countries affected by US sanctions, which have been targeted against President Robert Mugabe and members of his inner circle.
A week after the Reserve Bank of Zimbabwe (RBZ) announced new monetary policy measures to stabilise the cash crisis about three weeks ago, central bank governor, John Mangudya, said importing cash into the country was now difficult as foreign banks had started querying the high demand for notes in Zimbabwe.
He said the global financial system was careful not to promote money laundering.
“There are limitations in importing cash,” Mangudya told a breakfast meeting organised by the Zimbabwe National Chamber of Commerce to discuss cash shortages.
“They are now saying what has happened to that country. You cannot just wake up and say I want to import US$100 million, US$300 million. The bank is also a customer (somewhere) and there is something called customer due diligence. What we are seeing now is a market failure,” he said.
This week, a number of importers told the Financial Gazette that they had failed to pay for imported goods despite having funds in their accounts.
One importer said he had sort answers from the RBZ, but was told that the situation was being addressed.
He said he would be shutting down operations as soon as a pending transaction was processed.
International payment cards have been affected as well, while millions worth of imports have failed to be paid for, according to sources in both the banking industry and the manufacturing sectors.
To highlight the gravity of the sanctions regime on Zimbabwe, in February, Barclays Plc agreed to pay a US$2,5 million fine after its local subsidiary had processed transactions for government-backed entities in Zimbabwe that were subject to US sanctions.
Standard Chartered Bank has, as a result, made a decision to stop processing all US dollar cross-border transactions in and out of Zimbabwe.
NMBZ Holdings’ chief executive officer, Benefit Washaya, whose group owns NMB Bank, said the bank moved to establish accounts with alternative correspondent banks after Commerzbank closed its accounts.
“We moved quickly to establish agreements with Ecobank International and the Bank of China in Johannesburg to ensure that we can still transact business internationally on behalf of our clients and that their foreign transactions are not disrupted,” said Washaya.
One banker said Ecobank and the Bank of China were still new players in the correspondent bank market, where they were still trying to establish their brands, hence they could accept some transactions shunned by the big players.
The bankers said the US government was looking at ways to further tighten screws to force President Mugabe to accept political reforms and compensate dispossessed white farmers whose land was expropriated to resettle landless blacks.
But most of the beneficiaries turned out to be politicians and their cronies, some of whom acquired multiple farms since land reforms began in 2000.
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