MEFMI / RBZ Conduct in-Country Workshop on Money & Capital Markets

MEFMI and the Reserve Bank of Zimbabwe (RBZ) collaborated on a workshop on Money and Capital Markets. The two institutions have identified lack of depth and skills in the financial markets following the economic crisis and the flight of skilled and experienced personnel since the last decade. The primary objectives of the workshop were to improve understanding of the importance of the money and capital markets to the banking fraternity, and to enhance the practical skills base among financial market dealers/practioners from the various banks in the local market.

Currently the financial markets are restricted by a non-existent secondary market and the lack of a market maker when Treasury Bills (TBs) are issued. There is a thin primary market. Due to the non-existent secondary market, there are no buyers compelling commercial banks to hold onto the paper until maturity and match it with liabilities in terms of tenure in their books.

There is tight liquidity in the financial markets and it has been allocated to the different sectors. Thus, when the government issues T-Bills, they effectively crowd out the commercial banks by competing for the available funds. Thus one of the key recommendations from the in-country workshop was for the government to create a situation that allows it to enter the market and borrow funds without crowding out the private sector.

There was a panel session on the past, present and future of money and capital markets in Zimbabwe. The RBZ made a presentation capturing all the key aspects and engaged the participants on the evolution of the Zimbabwean financial markets over the last ten (10) years. This provided good experience as the regulator and the market discussed issues pertinent to the financial markets and brainstormed on strategies on how to revive the financial markets in Zimbabwe in an effort to restore confidence.

The role of discount houses was discussed at great length as discount houses historically played the role of market maker. When the central bank issued securities, it was done through discount houses, and they on-sold to the market. When a market participant needed to buy or sell an instrument this was done through the discount houses, because they were bound to buy or sell the offered instrument, thus ensuring liquidity in the market. Market makers are required to ensure liquidity, because all they do is trade and they do not take positions.

The price of money was also discussed as there has to be a consensus on the value of money. The workshop participants generally agreed that there cannot be wide divergence whereby one institution quotes 10% for a month long deposit, while another bank quotes 15% for the same amount and tenure, unless the difference reflects the risk premium. It was agreed that the most fundamental thing required in the financial markets is the setting of a risk free rate. Furthermore, this can only be achieved through the central bank regularly issuing securities in the market, and thus creating the risk free rate. This rate then becomes the basis for all other instruments that are to be issued and eliminates the situation where the price of money is not known.

The workshop was officially opened by the Senior Division Chief for Financial Markets, Mr. Saburi, who thanked MEFMI for its outstanding work in building capacity in the region. He highlighted the fact that MEFMI capacity building programmes are designed through close collaboration with the Institute’s members, specifically to meet their requirements for capacity building thus making them genuinely demand driven.  Mr. Saburi went on to point out the progress achieved in promoting growth of the domestic financial markets in the past decade. He also pointed out the weaknesses characterizing the Zimbabwean financial markets which include the low levels of liquidity in the money and capital markets particularly after the introduction of multiple currencies as well as a narrow investor base, which is largely confined to the commercial banks and a few non-bank financial institutions. He reminded participants at the workshop of the importance of financial markets in contributing to the economy and linking to other sectors in terms of investment facilitation.  He urged the participants to equip themselves with the relevant skills to develop appropriate policies to ensure success and continued market growth.

Out of the 76 participants, 19 (25%) were female 57 (75%) were male. This represents a widely noted gender imbalance in Treasury Departments in MEFMI countries which should be addressed going forward. Participants were drawn from money market and foreign exchange dealers, treasurers in commercial and investment banks, while from the Reserve Bank of Zimbabwe, participants were bank supervisors, economic researchers, banking operation officers, money and capital market officers, national payment system officers, international banking officers, exchange control officers, and finance practitioners.

Participants were given a case study that was a daily exercise in dealing and managing the balance sheet of  a hypothetical bank. They were divided into teams, with each team representing a commercial bank, and were provided with a bank balance sheet and a set of circumstances that affect the operation of a bank. Teams discussed and provided responses by taking action on their assets and liabilities. The teams had to continually reconfigure their portfolios in line with perceived changes in market conditions, and this was appreciated by the participants who clearly learnt how to run a bank’s treasury division. The teams had to then appoint a spokesperson to present to the workshop on their actions and the resultant balance sheet and management actions were scrutinised and debated. This definitely deepened the participant’s knowledge of how to operate in a well-functioning money and capital market.

Resource persons were drawn from the region comprising two accredited MEFMI Fellows from the Bank of Uganda and the Reserve Bank of Malawi and one regional expert from RCMI First Capital. The resource persons brought in considerably high levels of experience in the areas of financial market development and investment. The programme was designed to be theoretical at the beginning, laying a foundation on the concepts and fundamentals on the role of money and capital markets; the players and the organization structure of the markets. Thereafter, it delved deeper into topics on interest rates; codes of conduct; market concepts; pricing of money market instruments and fixed income concepts and the pricing of bonds.