Banks in Zimbabwe have until end of April to submit mandatory stress test results, as the regulator comes harder on lenders to avoid a repeat of the2004 financial sector crisis. The 25 lenders were in January ordered by the Reserve Bank of Zimbabwe (RBZ) to surrender their internal test results with effect from this year, and within 30 days after the close of each quarter.

The move should help the RBZ to keep in check whether banks have enough capital buffers required to shield them in the event of harsh global economic conditions.

Results will for the first time be made public on a quarterly basis, it was revealed — a major shift by the regulator from its tradition of lack of transparency.

In the 2004 episode, banking industry came to the brink of collapse amid a crisis marked by an adverse liquidity strain and a series of bank closures.

RBZ Governor Gideon Gono has singled out crooked bankers as to blame for that turmoil and accused them of gambling with depositors’ money through underhand speculative activities.

However, financial sector stability now enjoys top priority following the appointment of Finance Minister Tendai Biti to the treasury’s helm in 2009, a vital cog without which analysts say Zimbabwe’s current status as one of the fastest growing economies would pale into irrelevance.

Official predictions for this year suggest the economy will expand an average 9.4 percent.

Besides internal tests, which lenders conduct on their own, Gono said the reserve bank will carry out its separate tests as part of gauging potential vulnerability of individual banks and the sector at large.

“The potential loan losses that we know about are not as yet reflected in the banks’ balance sheets. Under such conditions, the political implications of bank failures will be hard to forecast,” said John Legat, the head at Imara Asset Management Zimbabwe.

But Gono vowed that banks should make the cut or face stricter regulatory controls, whereas economists stressed the need to strike the balance between regulation and the creation of an enabling environment for financial institutions to play their economic role of lending money.

For example, stringent rules might overstretch banks, forcing them to concentrate on regulatory commitments while pushing their function as money lenders to the backburner.

“Banking institutions that fail stress tests and have no demonstrable mitigatory measures in place will be subject to appropriate supervisory action by the central bank,” he said.

The central bank monitors and analyses capital requirements in two categories: Tier 1 capital, which comprises ordinary paid-up capital, retained earnings and general reserves among other elements, as well as Tier 2 capital, consisting of subordinated debt instruments and revaluation reserves.

A cocktail of robust fiscal data that includes lower consumer prices and faster economic growth rates has been supportive of the banking industry’s return to competitiveness since the country adopted a basket of foreign currencies about three years ago.

The treasury boss and his central bank counterpart have reiterated that most lenders’ balance sheets were in healthier shape, buoyed by a “safe and sound” banking system.

But as lending rates remain at stratospheric levels, efforts aimed at reviving ailing productive sectors of the economy and restoring confidence in a sector long-battered by scarce liquidity and short-term loans may be stifled.

Reserve bank data showed interest rates charged by most lenders declined by 1500 basis points to an average 20 percent in the last quarter of 2011, from 35 percent in 2009.

The steep lending rates have put cheaper credit out of reach, thanks to rising demand for loans as industrialists pull out all the stops to boost production capacity in factories that have been grounded by a decade-long recession.

Official figures provided in January indicate 20 of the 25 banks in Zimbabwe have met the capital requirements prescribed by the RBZ, while latest reports said two more banks have complied.

The ratio of loans to deposits for the banking sector stood at 89 percent in December last year, well within international thresholds.

Estimates suggest bank deposits will reach about US$4 billion before the year is out.

But concerns still linger that local banks were too reliant on foreign loans to finance domestic lending, with economists citing the high risk of exposure to the global credit crunch originating from the deepening sovereign debt problems in the euro area.