Increase in reserve requirements for commercial banks could have unforeseeable consequences?

?Aumento das reservas obrigatórias aos bancos comerciais pode ter consequências imprevisíveis?

Businessmen warn that the increase in compulsory reserves required of Mozambican commercial banks could have unpredictable consequences on the country's financial system.

At issue is the increase in reserves that banks have to keep with the central bank (parked money, without remuneration): the regulator decided this week to raise the coefficients to 39% for liabilities (case of deposits) in national currency and 39.5% in the case of foreign currency.

This is the second rise of the year, and at the beginning of 2023 they were 10.5% and 11.5% respectively.

The central bank justified the measure by arguing that it aims to absorb excessive liquidity in the banking system, with the potential to generate inflationary pressure. However, businessmen think that the decision will raise interest rates, making it even more expensive to get financing, essential in an economy of small and medium enterprises, which will have more difficulties.

In a meeting between the Bank of Mozambique (BM) and the Confederation of Mozambican Economic Associations (CTA), the businessmen said that the measure could ?shake the financial system, especially in smaller banks, with consequences that we cannot measure today.

For the president of the Portugal-Mozambique Chamber of Commerce, João Figueiredo, who is also non-executive president of Moza Banco, the new coefficients are ?truly unsustainable?

For his part, the vice president of the CTA's Financial Policy and Services portfolio, Oldemiro Belchior, believes that the decision will pose challenges for banks.

We see difficulties for some small and medium-sized banks in fulfilling these requirements, especially at a time when they are unable to quickly convert the deposits they capture into credit, because market interest rates are relatively high and demand is increasingly depressed," said Oldemiro Belchior, adding that it is time for Mozambique to think of alternative sources of financing the economy.

As an example, João Figueiredo suggested that lines be created for strategic sectors and that this financing be deducted from the obligatory reserves ? an idea noted by the WB, he mentioned

However, the administrator of the central bank, Silvina Abreu, present at the meeting, suggested that the bank use more ?creative? ways of making it possible to finance the economy.

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