THE introduction of the Real Time Gross Settlement System (RTGS) a few years ago further enhanced the country’s reputation for having one of the most advanced banking systems on the African continent, but there is now a serious rethink on whether such an advanced payments system is good for Zimbabwe, a nation battling its worst economic crisis in history.
According to the Reserve Bank of Zimbabwe (RBZ), the RTGS meant, primarily, to stem cash shortages, reduce cheque fraud risks and delays in customer payments, has become a vehicle for illicit foreign exchange parallel market dealings that have distorted exchange rates beyond the wildest imagination.
“The use of the RTGS system for customer payments is hereby suspended until further notice… As the central bank, we have no option, but to take this drastic measure in order to maintain sanity in the financial system,” Gideon Gono, the RBZ governor said a fortnight ago.
Its suspension has left cheques and debit cards as the only payment methods for all non-cash transactions.
Analysts this week said flaws in the RTGS system had not only benefited parallel market dealers, but the banks as well through their runners.
Because of the suspension, whoever is accepting cheq-ues is now charging a huge premium to cover for the delays in cheque clearance and the loss of value due to inflation, which reached 231 million percent in July.
Witness Chinyama, Group economist for Kingdom Financial Holdings Limited (KFHL), said halting RTGS payments was necessary. He said the financial sector had been overwhelmed by transactions going through the system, which had become the biggest and easiest mover of funds between accounts.
It is estimated that more than 90 percent of the transactions handled by the banking sector were now through electronic transfer and this had clogged banks’ IT systems.
Analysts said banks had invested heavily in IT systems such as internet banking to handle electronic transfers and would now find it difficult to justify such investments to their shareholders.
“The platform was hijacked by speculators and most of these people stationed themselves at the banks, so the directive put to end illegal activities,” said Chinyama. “Following the suspension of RTGS, banks are now efficient and their IT systems have stabilised,” he added.
Earlier, KFHL had said in its weekly commentary that the suspension of the RTGS erodes investors’ earnings because it will now take stock market investors more time before they can receive their proceeds.
“What this means is that investors would now have to wait a little longer to enjoy proceeds from disposal of shares given that the cheques would only be processed after +3 settlement period with further waiting period for the cheque to clear,” KFHL said.
Yet others say the central bank is just toying with the symptoms of the problem and not its root cause. They said the banking public would continue to find innovative ways to get round the cash shortages countrywide and restore value.
“The sprouting of the so called ‘burning syndrome’ is a response to the hardships facing the nation. It is a form of survival tactics. The only way to cure this syndrome is simply putting the economy back on track by following the laid down principles of economics as espoused by the law of demand and supply. Anything outside this simple law will create another symptom,” said Lloyd Choto of Glen View.
Players in the banking sector told The Financial Gazette this week that the industry would now have to brace for the enormous use of cheques and the risks associated with it.
They said the cancellation of the RTGS meant that all those transactions formerly made by way of electronic transfer would revert to the cheque system.
“There is now pressure on cheques. Clients who were making use of the RTGS system have been forced to resort to using cheques that would have to be provided for by the banks at reasonable costs,” said an official with a local bank.
The official said on average, banks now use between five to 10 chequebooks daily to make transfers between individual or corporate accounts. Each cheque book contains up to 100 forms.
“Cheque books are expensive yet we have been ordered (by the Reserve Bank) to reduce the charges and that we reverse the excesses amounts that had been debited on clients’ accounts,” added the official.
Whether the increase in cheque transactions would cover for the loss of revenue suffered as a result of the suspension of the RTGS remains to be seen.
Banks were levying between $8 000 and $13 000 on each RTGS transaction.
The Bankers Ass-ociation of Zim-babwe last week said the suspension build rigidities in the smooth operation of the money market that had been overcome by electronic transfers.
Luckson Zembe, former Zimbabwe National Chamber of Commerce president said the suspension has had a major impact on business.
“There is no system that is in place to facilitate business transactions at the same level as RTGS with minimum business risk because people only make that transaction if they have money in their accounts. So RTGS in itself eliminates the risk inherent in cheque transactions where individuals may write cheques when they have no money in their account,” he said
With the RTGS system, it takes a day for the funds to reflect in the payee account with the payee able to access the money immediately.
“Cheques take a minimum of four working days to clear and in this hyperinflationary environment, where prices are changing almost every hour, four days to get the money is like a year. By the time you want to use the money, it would have lost value by almost 50 percent at the current rate of devaluation of the Zimbabwe dollar. That’s a major loss of value, which means you cannot buy what you could have bought when the transaction was done.” Zembe said.
Because cheques have attendant risks, people prefer bank certified cheques and the banks are running out of these, further crippling the operations of business.
“Bank cheques are more expensive than RTGS transaction; this has also increased the cost of doing business,” Zembe added.
Economists say the Zimbabwean economy is in a state of complete meltdown — producing inflation rates not seen since Germany in the 1920s, Greece and Hungary in the 1940s, and Yugoslavia in 1993.
They estimate that the nation’s annual inflation rate has risen from 1,000 percent in 2006, to 12,000 percent in 2007, to an immeasurable figure this year. Officials peg inflation at 230 million percent while other independent studies say it is nearly 531 million percent.
In August, the government moved to end cash shortages by loping off 10 zeros. Had they not done so, the conversion rate would have been 10 trillion Zimbabwean dollars to one United States dollar.
Analysts also attribute the economic crisis to the unresolved political settlement.
Lance Mambondiani, an investment executive with Coronation Financial Plc, said the problem with the Zimbabwean economy was that it had deviated from established economic norms that its redress is almost inconceivable under the current atmosphere.
“Although the central bank is said to be a major contributor to this crisis, even their well intended stabilisation efforts have failed due to political polarity,” Mambo-ndiani said.
“The stabilisation of exchange rates, a return to positive interest rates, the containment of inflation or taming the brain-drain and the black market is unfortunately dependent on the resolution of the country’s political crisis.”
Synodia Bhasera, Financial Gazette
