Nostro headache for insurance and pensions
PENSION funds and insurance firm are seeking clarity around local nostro Foreign Currency Accounts (FCAs) after the Government promulgated Statutory Instrument 280 of 2020 to allow the sector to conduct business in forex.
According to the new law, pension and provident funds will be required to “invest the contributions in investment instruments denominated in the same currency the contributions are made; and in respect of fund members whose contributions have been paid in foreign currency, through nostro accounts, pay such member’s benefits in the currency in which the contribution has been paid”.
But after having invested in foreign currency, at some point, policyholders and pension funds will need payouts in hard currency. However, the obtaining situation with regards local nostro FCAs makes it difficult for policyholders to get hard cash for their investments.
A survey by The Sunday Mail Business confirmed that most banks are not honouring requests from local nostro FCA holders to be paid in cash ostensibly because it is not readily available. Banks are seemingly not dispensing cash for local nostro FCAs funded through a transfer from another local nostro FCA.
Actuarial consultant Prosper Matiashe said any issues in the banking sector with regards to foreign currency payments could affect the insurance and pensions industry.
“With regards to payment of benefits in nostro, here we are worried to say if it’s local nostro, previously we have heard stories of banks not willing to disburse cash for any payment that came through a local bank in nostro.
“There is need to ensure that these issues don’t come up. If we can do it correctly now, we can avoid those issues because they can happen — clients saying they have been denied access to (USD) cash. If it happens to one pensioner, then the word will spread and we will lose trust in what we are trying to develop.
“We should avoid, at all levels, contamination. Some of these hard currency contributions are coming from a foreign-domiciled account, and they shouldn’t be contaminated by local payment issues that happen here.”
Recently Insurance Council of Zimbabwe (ICZ) executive officer Tendai Karonga highlighted similar concerns.
“Credibility of the insurance industry is heavily dependent upon timeous payment of claims. There is need to actively engage with the RBZ to ensure the existence of a system that allows timeous movement of claims payments,” he said.
All things being equal, banks should avail cash to all local nostro FCA holders as they were specifically created to distinguish between RTGS dollars and US dollars.
Local nostro FCAs can be funded from export receipts, foreign currency transferred from another nostro FCA and foreign currency cash deposits.
A banking industry insider, who spoke on condition of anonymity, said the decision to prioritise accounts funded by direct cash deposits or externally generated funds was due to the limited availability of US dollar notes.
Sustainability
The insurance and pensions industry is also concerned over the long-term sustainability of the decision to allow the sector to do business in foreign currency.
Analysts say there is need to address inconsistencies around SI 280 and Exchange Control Regulations of 1996.
Lawyer Nobert Phiri said: “You must remember that these SIs have to be read together with the Exchange Control Regulations of 1996.
“If you read these regulations, then read SIs 185 and 85, there is a certain level of inconsistencies, which are then carried over to SI 280.”
The Zimbabwe dollar was re-introduced after a 10-year hiatus through Finance Act No.2 of 2019 and Statutory Instrument 212 of 2019, which provide for exclusive use of the Zimbabwean dollar to settle all domestic transactions, as well as penalties for failure to do so.
Adjustments have since been made to allow for US dollar transactions.