Nevertheless a call in the company magnate in January 2004 alerted him what had been termed a looming shake- up in the financial services sector. It looks like the incoming governor had confided in a few close colleagues and acquaintances about his aims. This confirmed to Mzwimbi the fears that were appearing as RBZ refused to accommodate banks that had liquidity challenges.
The past two months of 2003 saw interest rates double glazing kent soar near 900 percent p.a., with the RBZ watching helplessly. The RBZ had the tools and capability to control these speeds but nothing has been done to facilitate the situation. This hiking of interest charges wiped out almost all of the bank’s earnings made over the year. Bankers generally rely on treasury bills (TBs) since they can easily be tradable. Their yield had been good until the interest rates dropped. Consequently bankers were borrowing at higher interest rates than the treasury bills could cover. Bankers were put in the awkward position of borrowing costly money and on-lending it cheaply. An illustration in Royal Bank was an entrepreneur who borrowed $120 million in December 2003, which by March 2004 had ballooned to $500 million because of the excessive prices.
Although the price of funds was now at 900% p.a., Royal Bank had only increased its interest rates to only 400% p.a, meaning it had been funding the customer’s shortfall. However this customer could not cover it and returned the $120 million and demonstrated that he had no capacity to repay the $400 million interest charge. Many Catholics accepted this anomaly because they thought it was a temporary disorder perpetuated from the inability of an acting governor to make bold decisions. Bankers believed that once a substantive governor was sworn in he would control the rates of interest. Much to their dismay, on assuming the governorship Dr. Gono left the rates untamed and thus the situation worsened. This situation continued up to August 2004, resulting in considerable strain on entrepreneurial bankers.
On reflection, some bankers feel that the central bank intentionally hiked the rates of interest, as this might let it restructure the financial services sector. They argue that during the cash crisis of the last half of 2003, bank CEOs would meet frequently with the RBZ in a bid to find solutions to the emergency. Retrospectively they assert That There’s evidence indicating that the present governor though not appointed however was already in control of the RBZ operations throughout this time period and was responsible for its untenable interest rate regime