## 1zweea2023001

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---

### Mission purpose, engagement, and scope
- Virtual TA mission by IMF MCM conducted from May 8 to 19, 2023, at the request of the Reserve Bank of Zimbabwe (RBZ) to assist on implementing the Basel II/III capital framework.
- Focus areas: standardised approaches for credit, operational, and market risks; capital definition; leverage ratio; large exposures; capital conservation buffer.
- Next TA mission agreed to occur around November 2023 to review draft regulations, support development of a questionnaire for an impact study, and develop supervisory reporting templates.
- Virtual meetings with RBZ Banking Supervision Division (BSD) management and supervisors, including Mr. Philip Madamombe (Director), Mr. Ruzayi Chiviri, Mrs. Norah Mukura, Mrs. Rachel Mushosho, Mrs. Susan Kabungaidze, Mrs. Violet Ndoro (Deputy Directors), and supervisors responsible for Basel III implementation.
- TA financed by the Financial Sector Stability Fund.

### Key observations on current implementation and immediate technical challenges
- Current practice and frameworks:
  - All banks use standardised approaches for calculating risk-based capital requirements in Zimbabwe.
  - Zimbabwe’s capital framework (Guideline No: 1-2011/BSD Technical Guidance on the Implementation of the Revised Capital Adequacy Framework in Zimbabwe) provides for standardised and internal model approaches but no banks are using internal models to calculate capital requirements.
  - Since 2012, RBZ has been conducting a parallel run of banks’ capital calculations based on a modified Basel II standardised approach for credit risk, using a Supervisory Rating Scale (SRS) as a proxy for external credit ratings.
- Immediate technical challenges:
  - Capital definition and prudential adjustments are not aligned with Basel III advancements (including capital instruments’ loss-absorbing capacity and capital buffers).
  - Credit risk RWA calculations are currently based on Basel I requirements with modified Basel II elements; increased granularity and risk-sensitivity in Basel III Standardised Approach require regulatory updates.
  - Operational risk capital calculation follows the Basel II Alternative Standardised Approach (ASA); Basel III Standardised Approach requires capture of new Business Indicator (BI) components, implying system and process changes.
  - Market risk regulation follows Basel 2.5 Standardised Approach (2009); to implement Basel III it will be necessary to:
    - Improve trading book identification criteria;
    - Move to the Basel III Simplified Alternative Standardised Approach (SSA) with scaling factors and prepare for equity and commodity risk capital requirements;
    - Apply new specifications limiting arbitrage between trading and banking books.
  - Large exposures regime currently uses Capital Base with limits of 25 percent (single exposure) and 75 percent (group exposure) of total capital base; recommendation is to reference Tier 1 capital and align limits with Basel III large exposure framework.
  - Leverage ratio in Zimbabwe:
    - Numerator uses Tier 1 Capital aligned with Basel II capital definition;
    - Prudential adjustments applied to numerator do not impact denominator (exposures);
    - No special treatment exists for derivative and securities financing transactions (SFT) exposures as proposed by Basel III.

### Sequencing and priority recommendations (preserve Table 1 structure)
- 1. Capital Calculation, Definition and Capital Buffers
  - 1.1 Draft a new version of capital definition in line with the Basel III requirements by incorporating notable advancements in:
    - Prudential adjustments
    - Capital instruments loss-absorbing capacity (going concern)
    - Capital buffers
  - Priority: High; Timeline: I
- 2. Capital Requirement for Credit Risk
  - 2.1 Draft updates in the current capital requirement for credit risk in line with the Basel III Standardised Approach by incorporating changes in:
    - asset classes
    - concepts
    - risk weights
  - Priority: High; Timeline: ST
- 3. Capital Requirement for Operational Risk
  - 3.1 Draft new regulation on the capital requirement for operational risk in line with the Basel III Standardised Approach
  - Priority: Medium; Timeline: ST
- 4. Capital Requirement for Market Risk
  - 4.1 Draft updates to the current Standardised Approach (Basel 2.5 SA) to comply with the Basel III Simplified Alternative Standardised Approach (SSA), mainly aiming to:
    - apply scaling factors to the risk components
    - prepare to incorporate capital requirements for equity and commodity risks
  - Priority: Medium; Timeline: ST
  - 4.2 Draft updates in the definition of trading book and banking book in line with the Basel III requirements
  - Priority: High; Timeline: ST
- 5. Large Exposures
  - 5.1 Draft updates to the current regulation on Large Exposures, mainly aiming to:
    - use Tier I Capital for setting the large exposure limits
    - adjust the large exposures’ limit requirements in line with the Basel III Framework
    - improve criteria for economic interdependence identification
    - revise the exemptions list in line with Basel III treatment for CRM Techniques and offsetting schemes
  - Priority: High; Timeline: I
- 6. Leverage Ratio
  - 6.1 Draft updates to the current regulation, mainly aiming to:
    - Update the capital definition in line with the Basel III Framework
    - consider the update of the exposure measure regarding the treatment of derivatives and Securities Financing Transactions
  - Priority: Medium; Timeline: ST
- 7. Reporting Templates
  - 7.1 Review the BSD1 prudential reporting template structure to incorporate all changes from the updated capital regulatory framework
  - Priority: High; Timeline: MT
- 8. Impact Studies
  - 8.1 Based on the drafts, conduct impact studies to assess banks' capacity to implement and comply with the proposed changes in capital requirements and operational limits, in order to establish an appropriate implementation strategy.
  - Priority: High; Timeline: MT

(I = immediate, up to 6 months; ST = short-term, 6 to 12 months; MT = medium-term, 12 to 24 months)

### Banking sector structure, market shares, and balance sheet composition
- Sector composition:
  - 14 commercial banks, 3 building societies, and 1 savings bank.
  - These institutions account for 36 percent of GDP as of end- March 2023.
  - Of the current 18 banking institutions, 8 have foreign control, with a market share of 57.5 percent.
- Main activities: financial intermediation, deposit acceptance, and lending.
- Assets mainly: loans and advances; balances with the RBZ; securities and investments.
- Derivatives such as swaps and futures are not a common feature of the market.
- Banks are not allowed to trade in equities and commodities in the normal course of business (with two banks exceptionally holding such exposures).
- Liabilities composition:
  - deposits: 54.1 percent,
  - capital and reserves: 17.3 percent.

### Capital definition, scope, minimum ratios, and D-SIB buffer
- Zimbabwe capital definition aligns with Basel II: total capital = Tier 1 + Tier 2 with necessary deductions (Guideline No: 1-2011/BSD).
- Scope of application: consolidated basis.
- Minimum required capital ratios in Zimbabwe:
  - Tier 1 ratio: 8 percent,
  - Total Capital ratio: 12 percent.
- Basel II comparator:
  - Tier 1: 4 percent,
  - Total Capital: 8 percent.
- D-SIB additional buffer: 1–3.5 percent of total RWA should be fulfilled with Tier 1.
- Reported averages in March 2023: Tier 1 capital ratio of 27.9 percent and Total Capital of 41.1 percent (reported by banks).

### RWA for credit risk (modified standardized approach) and SRS
- RBZ developed a modified standardized approach broadly in line with Basel II asset classes and CRM; risk-weights applied based on proxies of external credit ratings using RBZ mapping.
- All banks required to use the same rating scale (Supervisory Rating Scale, SRS); banks retain internal judgement for risk classification.
- Vulnerability: banks’ internal judgement departs from Basel II standardized approach reliance on independent external agencies.
- CRM methodology: largely in line with Basel II and III; institutions apply the simple approach. Risk weighting methodology depends on banks’ internal judgement instead of standardized RWs.
- Basel III contains more granular and higher supervisory haircuts for collaterals in the comprehensive approach (CRE20.50) than Zimbabwe (Guideline 001- 3.16.19) and Basel II (Part 2, II, D, §151).

SRS structure (selected entries):
- 1 - Prime Grade — Insignificant — Pass
- 2 (2a, 2b, 2c) — Strong — Modest
- 3 (3a, 3b, 3c) — Satisfactory — Average
- 4 (4a, 4b, 4c) — Moderate — Acceptable / Special Mention
- 5 (5a, 5b, 5c) — Fair — Acceptable with care
- 6 (6a, 6b, 6c) — Speculative — Management Attention
- 7 (7a, 7b, 7c) — Highly Speculative — Special Attention
- 8 — Substandard — Vulnerable Substandard
- 9 — Doubtful — High Default Doubtful
- 10 — Loss — Bankrupt Loss

Mapping examples (RBZ scale → Standard & Poors/Fitch/GCR → Moody’s):
- 1 → AAA → Aaa
- 2a → AA+ → Aa1
- 2b → AA → Aa2
- 2c → AA= → Aa3
- 3a → A+ → A1
- 3b → A → A2
- 3c → A- → A3
- 4a → BBB+ → Baa1
- 4b → BBB → Baa2
- 4c → BBB- → Baa3
- 5a → BB+ → Ba1
- 5b → BB → Ba2
- 5c → BB- → Ba3
- 6a → B+ → B1
- 6b → B → B2
- 6c → B- → B3
- 7a → CCC+ → Caa1
- 7b → CCC → Caa2
- 7c → CCC- → Caa3
- 8 → CC → Ca
- 9 → C → C
- 10 → D → D

### Treatment of derivative exposures and CCR
- RBZ applies the Basel II Current Exposure Method (CEM) to treat derivative exposures.
- TA mission advises maintaining the CEM approach given banks’ non-complex activities; Basel III updated methodologies (SA-CCR and IMM) are more complex.

### RWA for operational risk and ASA usage
- RBZ uses the Basel II Advanced Standardized Approach (ASA) requirements.
- ASA segregates activities into eight business lines with capital charge = gross income × β factor.
- Business line β factors:
  - corporate finance – 18%;
  - trading & sales – 18%;
  - retail banking – 12%;
  - commercial banking – 15%;
  - payment & settlement – 18%;
  - agency services – 15%;
  - asset management – 12%;
  - retail brokerage – 12%.
- ASA allows loans and advances to replace gross income for retail and commercial banking; RBZ applies the aggregation alternative to require capital under the ASA.
- All 18 banks use the ASA.
- 2016–2017 BSD onsite reviews found:
  - 14 banks are fully compliant with mapping the 8 business lines into the 3 business lines required by regulation.
  - Banks are creating internal loss databases, but none have applied to use Advanced Measurement Approaches (AMA).

### RWA for market risk and composition
- Trading book identification follows the Basel 2.5 Framework; Basel Revised Market Risk Framework (2016) and Basel III include further specifications to limit arbitrage.
- Market risk exposure concentration:
  - Interest Rate Risk: 3.73%
  - Equity Position Risk: 1.16%
  - Foreign Exchange Risk: 95.11%
  - Commodities Risk: 0.01%
- Securities trading markets are not developed; banks ordinarily not permitted to hold equities and commodities exposures (two banks exceptional cases).
- All 18 banks use the Standardized Approach for market risk; internal models allowed under supervisory approval but no applications yet.
- RBZ regulation for market risk aligned with Basel 2.5 SA for interest rate and foreign exchange components.

### Specific risk capital charges for unrated instruments (selected entries)
- Government:
  - AAA to AA-: 0%
  - A+ to BBB-: 0.25% (residual term to final maturity 6 months or less)
  - A+ to BBB-: 1.00% (residual term to final maturity greater than 6 and up to and including 24 months)
  - A+ to BBB-: 1.60% (residual term to final maturity exceeding 24 months)
  - BB+ to B-: 8.00%
  - Bellow B-: 12.00%
  - Unrated: 8.00%
- Qualifying:
  - 0.25% (residual term to final maturity 6 months or less)
  - 1.00% (residual term to final maturity greater than 6 and up to and including 24 months)
  - 1.60% (residual term to final maturity exceeding 24 months)
- Other:
  - BB+ to BB-: 8.00%
  - Bellow BB-: 12.00%
  - Unrated: 8.00%

### Large exposures assessment, limits, and recommendations
- Basel III [LEX10.8]: “the sum of all    exposure values of a bank to a counterparty or to a group of connected counterparties must be defined as a large exposure if it is equal to or above 10 percent of the bank’s Tier1 capital”.
- Current RBZ practice evaluates large exposures against Capital Base instead of Tier 1 Capital, which:
  - raises the cap; and
  - may exclude counterparties that should be treated as large exposures according to Basel III Framework.
- RBZ large exposure limits and special limits:
  - limit of 25 percent Capital Base to exposures from single persons and common enterprises;
  - limit of 75 percent Capital Base to exposures from corporate groups.
- Figure summary:
  - single person, partnership or common enterprise: <= 25% Capital Base
  - single corporate group: <= 75% Capital Base
  - single member of a corporate group: <= 25% Capital Base
  - aggregate large exposures: <= 800% Capital Base
  - Basel III comparator shown as <= 25% Tier 1 Capital
- Observations:
  - A 75% Capital Base limit for corporate groups may weaken the backstop role of large exposures [Basel III “LEX10.2”].
  - The FSSR report (February/2019) noted elevated credit concentration, reporting gaps where exposures from groups are not aggregated, and exceptions granted for groups up to 75 percent of capital in some banks.
- Recommendations to revise large exposures regulation:
  - Replace the Capital Base by Tier 1 Capital for identification (>=10% Tier1 Capital) and limit calculation (<= 25% Tier 1 Capital);
  - Adjust large exposures limit requirements in line with Basel III Framework - LEX <= 25% Tier 1 Capital to each single or group of connected counterparties; consider a transition period for corporate groups;
  - Improve criteria for economic interdependence identification in line with LEX10.17;
  - Revise exemptions in paragraph 40 in line with Basel III recommendations for CRM techniques (LEX30.7-LEX30.21), offsetting schemes (LEX30.22-LEX30.30) and exemptions (LEX30.31-LEX30.36), assessing elimination of exemptions not compliant with Basel III (e.g. 40(f));
  - Require banks to immediately inform supervisors of breaches on the limit (current paragraph 41 misses immediate communication; Basel “LEX 20.3” requires immediate communication and rapid rectification).

### Leverage ratio considerations
- Zimbabwe leverage ratio:
  - exposures comprise total assets and include off-balance sheet items.
  - capital measure aligned with Tier 1 capital definition of Basel II.
  - prudential adjustments to Tier 1 are not deducted from the exposure measure (reassessment needed with Basel III capital definition).
- RBZ regulation does not consider special treatment for derivatives and SFTs in Leverage Ratio calculation; current limited market activity reduces immediate harm.
- Recommendation: update capital definition and exposure measure consistent with Basel III; assess need for special treatment for SFTs and derivatives (comprehensive approach for SFTs; CEM for derivatives if applicable).

### Operational risk: move to Basel III Standardized Approach, BI components, ILM, and QIS recommendations
- Recommendation to adopt the Basel III Standardized Approach to replace ASA.
- Conceptual features:
  - operational risk increases at an increasing rate with a bank’s income (marginal coefficient α applied to BI component);
  - historical operational risk losses inform future capital via Internal Loss Multiplier (ILM).
- BI component reclassification and formula extracts:
  - BI components: ILDC (Interest, leases and dividend component), SC (services component), FC (financial component).
  - ILDC = min (abs (interest income – interest expense), 2.25% x interest earning assets) + dividend income
  - SC = max (other operating income, other operating expense) + max (fee income, fee expense)
  - FC = abs (net P&L trading book) + abs (net P&L banking book)
- ILM applicability:
  - ILM required only for banks with BI > EUR 1 billion.
  - If BI ≤ 1 billion euros, ILM = 1.
  - ILM = 1 avoids requirement for a 10-years internal losses database.
- BI marginal coefficient buckets:
  - Bucket 1: BI range (in €bn) ≤ 1 — BI marginal coefficients (훂훂i) 12%
  - Bucket 2: BI range (in €bn) 1 < BI ≤ 30 — BI marginal coefficients (훂훂i) 15%
  - Bucket 3: BI range (in €bn) > 30 — BI marginal coefficients (훂훂i) 18%
- Additional operational risk metric:
  - LC = Loss Component: 15 times average annual operational risk losses incurred over the previous 10 years
- BSD QIS recommendations for operational risk:
  - Conduct QIS to:
    - assess impact on capital requirement levels and implementation timelines;
    - define scope of BIs aligned with Zimbabwe activities;
    - assess banks’ capacity for BI data collection;
    - consider setting ILM = 1 initially or applying ILM as a cap;
    - consider recalibration of α given domestic market characteristics.

### Market risk: SSA adoption, TB-BB definitions, scaling factors, and QIS
- TB-BB regulatory changes recommended:
  - Clarify MUST and PRESUMED lists for TB-BB classification (RBC25.1-RBC25.9) and supervisory approval for deviations;
  - Institute procedures for assessing deviations and require supervisory reports on rationale and compliance (RBC25.10-RBC25.12);
  - Establish rules for TB-BB switching with strict limits and fixed additional Pillar 1 capital where appropriate (RBC25.14-RBC25.16);
  - Enhance requirements for Internal Risk Transfer (RBC25.18-RBC25.27).
- Align to SSA market risk methodology:
  - apply scaling factors to parcels;
  - align specific risk capital requirement methodology with credit risk specific risk;
  - assess inclusion of equity and commodities parcels as guidance for exceptional exposures.
- SSA scaling factors:
  - SFIRR = 1.30
  - SFFX = 1.20
  - SFEQ = 3.50
  - SFCOMM = 1.90
- BSD QIS recommendation for market risk:
  - Conduct QIS to assess impact of SSA implementation and collect data on scaling factor application, inclusion of equity/commodities parcels, and adequacy of TB-BB identification systems.

### QIS, reporting templates, leverage, and large exposures data collection (BSD action points)
- A. Large Exposures — QIS and data collection:
  - Conduct QIS to assess impact of changing metric reference from Capital Base to Tier1 Capital and adjustments due to connected counterparties’ definitions and corporate group alignment strategies.
  - Basel III guidance: “LEX 20.3 Breaches of the limit, which must remain the exception, must be communicated immediately to the supervisor and must be rapidly rectified.”
- B. Leverage Ratio:
  - Update capital definition and exposure measure in line with Basel III; consider prudential adjustments related to assets in Tier 1 and special treatment for SFTs and derivatives.
- C. Reporting templates (BSD1):
  - Review BSD1 prudential reporting templates to incorporate all changes from the updated capital regulatory framework to ensure granularity required for off-site supervision.
- D. Banking Sector structure (as of March 31, 2023) — selected banks and market shares:
  - Total assets (aggregate): ZW$5,676,249,421,354.56; Market share total: 100.00%
  - CBZ Bank: 1,130,050,234,770.55 — 19.91%
  - Stanbic Bank: 918,650,864,507.17 — 16.18%
  - Ecobank: 739,198,108,189.91 — 13.02%
  - CABS: 442,191,703,712.68 — 7.79%
  - FBC Bank: 384,480,543,152.44 — 6.77%
  - ZB Bank: 280,932,959,100.53 — 4.95%
  - First Capital Bank: 232,342,278,025.32 — 4.09%
  - BancABC: 485,447,943,743.94 — 8.55%
  - Standard Chartered Bank: 158,979,840,529.56 — 2.80%
  - Nedbank: 103,766,143,893.50 — 1.83%
  - NMB Bank: 183,751,326,408.78 — 3.24%
  - Steward Bank: 140,020,529,948.00 — 2.47%
  - Metbank: 166,681,717,235.00 — 2.94%
  - AFC Commercial Bank: 124,208,300,016.33 — 2.19%
  - POSB: 48,621,261,619.69 — 0.86%
  - FBC Building Society: 53,091,909,639.42 — 0.94%
  - National Building Society: 64,137,033,951.54 — 1.13%
  - ZB Building Society: 19,696,722,910.20 — 0.35%
- E. Banking Sector Indicators (selected figures, exact values preserved):
  - Total Assets:
    - Mar-22: $969.24bn (USD6.81bn)
    - June-22: $1.94tn (USD5.30bn)
    - Sept-22: $3.11tn (USD5.00bn)
    - Dec-22: $3.81tn (USD5.67bn)
    - Mar-23: $5.68tn (USD6.11bn)
  - Total Loans & Advances:
    - Mar-22: $320.36bn (USD2.25bn)
    - June-22: $603.14bn (USD1.65bn)
    - Sept-22: $1.01tn (USD1.63bn)
    - Dec-22: $1.29tn (USD1.92bn)
    - Mar-23: $1.97tn (USD2.12bn)
  - Net Capital Base:
    - Mar-22: $170.00bn (USD1.19bn)
    - June-22: $349.48bn (USD0.95bn)
    - Sept-22: $535.96bn (USD0.86bn)
    - Dec-22: $746.30bn (USD1.11bn)
    - Mar-23: $1.01tn (USD1.09bn)
  - Core Capital:
    - Mar-22: $138.21bn (USD0.97bn)
    - June-22: $284.74bn (USD0.78bn)
    - Sept-22: $438.11bn (USD0.70bn)
    - Dec-22: $611.11bn (USD0.91bn)
    - Mar-23: $803.08bn (USD0.86bn)
  - Total Deposits:
    - Mar-22: $582.26bn (USD4.09bn)
    - June-22: $1.12tn (USD3.06bn)
    - Sept-22: $1.91tn (USD3.07bn)
    - Dec-22: $2.29tn (USD3.11bn)
    - Mar-23: $3.17tn (USD3.41bn)
  - Net Profit:
    - Mar-22: $27.05bn (USD0.19bn)
    - June-22: $181.25bn (USD0.49bn)
    - Sept-22: $342.28bn (USD0.55bn)
    - Dec-22: $503.13bn (USD0.75bn)
    - Mar-23: $207.25bn (USD0.22bn)
  - Return on Assets:
    - Mar-22: 3.39%
    - June-22: 8.67%
    - Sept-22: 16.48%
    - Dec-22: 17.43%
    - Mar-23: 4.92%
  - Return on Equity:
    - Mar-22: 12.43%
    - June-22: 31.60%
    - Sept-22: 53.19%
    - Dec-22: 54.33%
    - Mar-23: 16.62%
  - Capital Adequacy Ratio (benchmark 12%):
    - Mar-22: 35.16%
    - June-22: 33.87%
    - Sept-22: 35.45%
    - Dec-22: 37.51%
    - Mar-23: 41.05%
  - Tier 1 Ratio (benchmark 8%):
    - Mar-22: 26.97%
    - June-22: 18.84%
    - Sept-22: 23.97%
    - Dec-22: 26.92%
    - Mar-23: 27.85%
  - Loans to Deposits Ratio (benchmark 70%):
    - Mar-22: 55.02%
    - June-22: 53.69%
    - Sept-22: 52.83%
    - Dec-22: 55.67%
    - Mar-23: 62.09%
  - NPLs Ratio (benchmark 5%):
    - Mar-22: 1.57%
    - June-22: 1.50%
    - Sept-22: 1.41%
    - Dec-22: 1.58%
    - Mar-23: 3.30%
  - Liquidity Ratio (benchmark 30%):
    - Mar-22: 61.38%
    - June-22: 60.78%
    - Sept-22: 59.51%
    - Dec-22: 59.50%
    - Mar-23: 57.65%
- Chart data points (Total Loans, Billions):
  - Dec-18: 4.07
  - Dec-19: 12.63
  - Dec-20: 82.41
  - Dec-21: 229.02
  - Dec-22: 1,293.51
  - Mar-23: 1,969.12

### Capital composition, Basel III highlights, and implementation steps
- Basel III Total Capital components: Common Equity Tier 1 (CET1), Additional Tier 1 and Tier 2.
- CET1 components per Basel III CAP10:
  - issued common shares and similar instruments;
  - stock surplus (share premium);
  - retained earnings, including interim profit/loss;
  - accumulated other comprehensive income and other disclosed reserves;
  - minority interest;
  - regulatory adjustments.
- CET1 regulatory adjustments - assets deducted in full include:
  - Gain on sale related to securitization transactions;
  - Goodwill and other intangibles;
  - Investments in the capital of financial institutions or in own shares;
  - Deferred tax assets related to operation losses;
  - Benefit pension fund assets with restricted access by the bank;
  - Minority interest held by third parties;
  - Cash Flow hedge reserve;
  - Shortfall of the stock of provisions to expected losses;
  - Cumulative gains/losses from changes in own credit risk on fair valued liabilities;
  - Non-significant investments in banking, financial and insurance entities not consolidated.
- Assets partially deducted (“basket” < 15% of the CET1) include:
  - Significant investments in banking, financial and insurance entities not consolidated;
  - Deferred tax assets related to temporary differences;
  - Mortgage Servicing Rights (MSRs).
- Capital instruments must absorb losses while the institution is functioning: Additional Tier 1 and Tier 2 instruments should be subject to write-off or conversion into shares when point of non-viability is reached.
- Basel III minimum capital requirements introduce higher CET1 preponderance and buffer requirements (conservation, countercyclical, systemic); CET1 should be used first to fulfill minimum requirement and remaining amount should contribute to capital buffers.
- Zimbabwe context:
  - Zimbabwe already has the systemic buffer, though the requirement should be satisfied with Tier 1 capital.
  - Reported averages in March 2023: Tier 1 capital ratio of 27.9 percent and Total Capital of 41.1 percent.
- Implementation steps recommended:
  - Implement the stricter Basel III capital definition and prudential adjustments;
  - Implement capital conservation buffer;
  - Conduct QIS for transition impacts and calibration.

### Standardized approach for credit risk — key Basel III changes and QIS guidance
- Basel III SCRA aims to improve risk-sensitivity, reduce dependence on external ratings and ensure suitability.
- Key changes and new exposure categories:
  - Unrated exposures – banks & corporates: more granular approach.
  - Banks – rated exposures: RW recalibration, more granular treatment.
  - Corporates: more granular, new categories – Corporate SME, Specialised Lending.
  - Covered Bonds: new exposure category.
  - Residential Real Estate: RW according to LTV ratios.
  - Retail: more granular, new “transactors” & “revolvers”.
  - Commercial Real Estate: more risk-sensitive (Basel II had flat 100% RW).
  - Subordinated debt & equity: more granular RWs.
  - Off-balance sheet items: positive CCFs (10%, Basel II- 0%) for unconditionally cancellable commitments (UCCs).
  - Defaulted exposures: new definition of default, aligns with IRB definition.
- New asset classes added: Covered Bonds, Equity and Subordinated Debt, Specialized Lending, Acquisition/Development/Construction exposures.
- Recommendation: conduct quantitative studies (QIS) collecting granular data on applicable treatments, CCFs, constituted provisions, RWs, and detailed concepts of past due and defaulted exposures to assess impact.

### Credit risk mitigation (CRM) and supervisory haircuts
- Recommendation: Consider maintaining the use of Basel II CEM to treat derivative exposures and the comprehensive approach from CRM for SFTs to avoid CCR methodological complexity.
- Update supervisory haircuts in RBZ comprehensive approach recommended though not crucial given banks use the simple approach; current Zimbabwe CRM methodology contains less granular and lower supervisory haircuts than Basel III (CRE20.50).

*Source: Preface, Executive Summary and Introduction — FSSR Follow Up Technical Assistance—Implementation of the Basel II/III Capital Framework (IMF mission, May 8 to 19, 2023).*

### Preface ................................................................................................................

### Preface

### Mission purpose and scope
- Virtual TA mission by IMF MCM conducted from May 8 to 19, 2023, at the request of the Reserve Bank of Zimbabwe (RBZ) to assist on implementing the Basel II/III capital framework.
- Focus areas: standardised approaches for credit, operational, and market risks; capital definition; leverage ratio; large exposures; capital conservation buffer.
- Next TA mission agreed to occur around November 2023 to review draft regulations, support development of a questionnaire for an impact study, and develop supervisory reporting templates.

### Engagement and participants
- Virtual meetings held with RBZ Banking Supervision Division (BSD) management and supervisors, including Mr. Philip Madamombe (Director), Mr. Ruzayi Chiviri, Mrs. Norah Mukura, Mrs. Rachel Mushosho, Mrs. Susan Kabungaidze, Mrs. Violet Ndoro (Deputy Directors), and supervisors responsible for Basel III implementation.
- TA financed by the Financial Sector Stability Fund.

### Key observations on current implementation
- Currently, all banks use standardised approaches for calculating risk-based capital requirements in Zimbabwe.
- Zimbabwe’s capital framework (Guideline No: 1-2011/BSD Technical Guidance on the Implementation of the Revised Capital Adequacy Framework in Zimbabwe) provides for standardised and internal model approaches but no banks are using internal models to calculate capital requirements.
- Since 2012, RBZ has been conducting a parallel run of banks’ capital calculations based on a modified Basel II standardised approach for credit risk, using a Supervisory Rating Scale (SRS) as a proxy for external credit ratings due to absence of external credit rating agencies.

### Immediate technical challenges identified
- Capital definition and prudential adjustments are not aligned with Basel III advancements (including capital instruments’ loss-absorbing capacity and capital buffers).
- Credit risk RWA calculations are currently based on Basel I requirements with modified Basel II elements; increased granularity and risk-sensitivity in Basel III Standardised Approach present an opportunity but require regulatory updates.
- Operational risk capital calculation follows the Basel II Alternative Standardised Approach (ASA) and will require banks to capture new Business Indicator (BI) components per Basel III Standardised Approach, implying system and process changes for data collection.
- Market risk regulation follows Basel 2.5 Standardised Approach (2009); to implement Basel III it will be necessary to:
  - Improve trading book identification criteria;
  - Move to the Basel III Simplified Alternative Standardised Approach (SSA) with scaling factors and prepare for equity and commodity risk capital requirements;
  - Apply new specifications limiting arbitrage between trading and banking books.
- Large exposures regime currently assesses exposures relative to total capital with limits of 25 percent (single exposure) and 75 percent (group exposure) of total capital base; recommendation is to reference Tier 1 capital and align limits with Basel III large exposure framework.
- Leverage ratio in Zimbabwe is designed similarly to Basel III in scope of exposures (total assets including off-balance sheet items) but:
  - Numerator uses Tier 1 Capital aligned with Basel II capital definition;
  - Prudential adjustments applied to numerator do not impact denominator (exposures);
  - No special treatment exists for derivative and securities financing transactions (SFT) exposures as proposed by Basel III.

### Recommended sequencing and priorities (Table 1: Zimbabwe: Key Recommendations)
- 1. Capital Calculation, Definition and Capital Buffers
  - 1.1 Draft a new version of capital definition in line with the Basel III requirements by incorporating notable advancements in:
    - Prudential adjustments
    - Capital instruments loss-absorbing capacity (going concern)
    - Capital buffers
  - Priority: High; Timeline: I
- 2. Capital Requirement for Credit Risk
  - 2.1 Draft updates in the current capital requirement for credit risk in line with the Basel III Standardised Approach by incorporating changes in:
    - asset classes
    - concepts
    - risk weights
  - Priority: High; Timeline: ST
- 3. Capital Requirement for Operational Risk
  - 3.1 Draft new regulation on the capital requirement for operational risk in line with the Basel III Standardised Approach
  - Priority: Medium; Timeline: ST
- 4. Capital Requirement for Market Risk
  - 4.1 Draft updates to the current Standardised Approach (Basel 2.5 SA) to comply with the Basel III Simplified Alternative Standardised Approach (SSA), mainly aiming to:
    - apply scaling factors to the risk components
    - prepare to incorporate capital requirements for equity and commodity risks
  - Priority: Medium; Timeline: ST
  - 4.2 Draft updates in the definition of trading book and banking book in line with the Basel III requirements
  - Priority: High; Timeline: ST
- 5. Large Exposures
  - 5.1 Draft updates to the current regulation on Large Exposures, mainly aiming to:
    - use Tier I Capital for setting the large exposure limits
    - adjust the large exposures’ limit requirements in line with the Basel III Framework
    - improve criteria for economic interdependence identification
    - revise the exemptions list in line with Basel III treatment for CRM Techniques and offsetting schemes
  - Priority: High; Timeline: I
- 6. Leverage Ratio
  - 6.1 Draft updates to the current regulation, mainly aiming to:
    - Update the capital definition in line with the Basel III Framework
    - consider the update of the exposure measure regarding the treatment of derivatives and Securities Financing Transactions
  - Priority: Medium; Timeline: ST
- 7. Reporting Templates
  - 7.1 Review the BSD1 prudential reporting template structure to incorporate all changes from the updated capital regulatory framework
  - Priority: High; Timeline: MT
- 8. Impact Studies
  - 8.1 Based on the drafts, conduct impact studies to assess banks' capacity to implement and comply with the proposed changes in capital requirements and operational limits, in order to establish an appropriate implementation strategy.
  - Priority: High; Timeline: MT

(I = immediate, up to 6 months; ST = short-term, 6 to 12 months; MT = medium-term, 12 to 24 months)

### Recommended next steps and implementation considerations
- Conduct impact studies using the drafted regulatory changes to assess banks’ capacity and to identify calibration needs and implementation timelines.
- Develop final supervisory reporting templates (BSD1 updates) under the new regulatory framework as a priority.
- Prepare banks for data collection changes required for the Basel III BI approach to operational risk and for potential changes to trading/banking book classification and market risk capital elements.

*Source: Preface, Executive Summary and Introduction — FSSR Follow Up Technical Assistance—Implementation of the Basel II/III Capital Framework (IMF mission, May 8 to 19, 2023).*

### 6. The banking sector consists of 14 commercial banks, 3 building societies, and 1

### 1zweea2023001 - 6. The banking sector consists of 14 commercial banks, 3 building societies, and 1

### Banking sector structure and market shares
- The banking sector consists of 14 commercial banks, 3 building societies, and 1 savings bank.
- These institutions account for 36 percent of GDP as of end- March 2023.
- Of the current 18 banking institutions, 8 have foreign control, with a market share of 57.5 percent.
- Other banks are local, including banks in part of wholly state-owned.

### Banking activities and balance sheet composition
- Main activities: financial intermediation, deposit acceptance, and lending.
- Banking sector assets are mainly in the form of:
  - loans and advances,
  - balances with the RBZ,
  - securities and investments.
- Derivatives such as swaps and futures are not a common feature of the market.
- Banks are not allowed to trade in equities and commodities in the normal course of business (with two banks exceptionally holding such exposures).
- Liabilities composition:
  - deposits: 54.1 percent,
  - capital and reserves: 17.3 percent.

### Capital definition, scope, and minimum ratios
- Zimbabwe’s capital definition aligns with Basel II: total capital = Tier 1 + Tier 2 with necessary deductions (Guideline No: 1-2011/BSD).
- Scope of application: consolidated basis; RBZ seeks to move forward with implementation of its regulations.
- Consolidation should capture relevant financial activities, including securities firms (similar regulation), leasing, credit cards, portfolio management, investment advisory, custodial services, and ancillary activities to the business of banking.
- Minimum required capital ratios in Zimbabwe:
  - Tier 1 ratio: 8 percent,
  - Total Capital ratio: 12 percent.
- These compare with Basel II requirements:
  - Tier 1: 4 percent,
  - Total Capital: 8 percent.
- D-SIB additional buffer: 1–3.5 percent of total RWA should be fulfilled with Tier 1.

### Calculation of RWA for credit risk (modified standardized approach)
- RBZ developed a modified standardized approach for credit risk calculation, broadly in line with Basel II asset classes and exposures and credit risk mitigation (CRM).
- Risk-weights applied are based on proxies of external credit ratings using an RBZ-developed mapping (Table 3).
- All banks are required to use the same rating scale (Supervisory Rating Scale, SRS), but banks retain internal judgement for risk classification based on qualitative criteria (Table 2).
- Vulnerability noted: use of banks’ internal judgement for risk classification departs from Basel II standardized approach which relies on independent external agencies.
- The IRB approach recognizes qualitative criteria but requires quantitative procedures and statistical models.
- CRM methodology is largely in line with Basel II and III; institutions apply the simple approach. Risk weighting methodology depends on banks’ internal judgement instead of standardized RWs.
- Basel III contains more granular and higher supervisory haircuts for collaterals in the comprehensive approach (CRE20.50) than Zimbabwe (Guideline 001- 3.16.19) and Basel II (Part 2, II, D, §151).

### Supervisory Rating Scale (SRS) — structure (as presented)
- SRS main classes and associated descriptive classifications and risk levels (selected entries as provided):
  - 1 - Prime Grade — Insignificant — Pass
  - 2 (2a, 2b, 2c) — Strong — Modest
  - 3 (3a, 3b, 3c) — Satisfactory — Average
  - 4 (4a, 4b, 4c) — Moderate — Acceptable / Special Mention
  - 5 (5a, 5b, 5c) — Fair — Acceptable with care
  - 6 (6a, 6b, 6c) — Speculative — Management Attention
  - 7 (7a, 7b, 7c) — Highly Speculative — Special Attention
  - 8 — Substandard — Vulnerable Substandard
  - 9 — Doubtful — High Default Doubtful
  - 10 — Loss — Bankrupt Loss

### Mapping of RBZ Rating Scale to external agencies (Table 3)
- Mapping examples (RBZ scale → Standard & Poors/Fitch/GCR → Moody’s):
  - 1 → AAA → Aaa
  - 2a → AA+ → Aa1
  - 2b → AA → Aa2
  - 2c → AA= → Aa3
  - 3a → A+ → A1
  - 3b → A → A2
  - 3c → A- → A3
  - 4a → BBB+ → Baa1
  - 4b → BBB → Baa2
  - 4c → BBB- → Baa3
  - 5a → BB+ → Ba1
  - 5b → BB → Ba2
  - 5c → BB- → Ba3
  - 6a → B+ → B1
  - 6b → B → B2
  - 6c → B- → B3
  - 7a → CCC+ → Caa1
  - 7b → CCC → Caa2
  - 7c → CCC- → Caa3
  - 8 → CC → Ca
  - 9 → C → C
  - 10 → D → D
- Note: All ratings below 5- (in grey cells) are sub-investment.

### Derivative exposures and counterparty credit risk
- RBZ applies the Basel II Current Exposure Method (CEM) to treat derivative exposures.
- Basel III updated methodologies (SA-CCR and IMM) are more complex; the TA mission advises maintaining the CEM approach given banks’ non-complex activities.

### Calculation of RWA for operational risk
- RBZ uses the Basel II Advanced Standardized Approach (ASA) requirements.
- ASA segregates bank activities into eight business lines with capital charge = gross income × β factor.
- Business line β factors (Business line factors (β)):
  - corporate finance – 18%;
  - trading & sales – 18%;
  - retail banking – 12%;
  - commercial banking – 15%;
  - payment & settlement – 18%;
  - agency services – 15%;
  - asset management – 12%;
  - retail brokerage – 12%.
- ASA allows loans and advances to replace gross income for retail and commercial banking; RBZ applies the aggregation alternative to require capital under the ASA.
- All 18 banks use the ASA.
- 2016–2017 BSD onsite reviews found:
  - 14 banks are fully compliant with mapping the 8 business lines into the 3 business lines required by regulation.
  - Banks are creating internal loss databases, but none have applied to use Advanced Measurement Approaches (AMA).

### Calculation of RWA for market risk
- RBZ criteria for identifying Trading Book Exposures follow the Basel 2.5 Framework; the boundary is the bank’s intent to trade an instrument.
- The Basel Revised Market Risk Framework (2016) and Basel III include further specifications to limit regulatory arbitrage between banking book and trading book.
- Market risk exposure in Zimbabwe is highly concentrated in foreign exchange (FX) risk.
  - Composition of market risk RWA (Figure 1):
    - Interest Rate Risk: 3.73%
    - Equity Position Risk: 1.16%
    - Foreign Exchange Risk: 95.11%
    - Commodities Risk: 0.01%
- Securities trading markets are not yet developed; banks ordinarily not permitted to hold equities and commodities exposures (two banks exceptional cases).
- All 18 banks use the Standardized Approach for market risk; internal models allowed under supervisory approval but no applications yet.
- RBZ regulation for market risk is aligned with Basel 2.5 SA for interest rate risk and foreign exchange risk components.

### Specific risk capital charges for unrated instruments (Table 4)
- RBZ requires grading unrated financial instruments according to SRS and mapping to an ECAI equivalent; specific risk capital charge corresponds to the ECAI-equivalent grade.
- Specific risk capital charges (selected entries as provided):
  - Government:
    - AAA to AA-: 0%
    - A+ to BBB-: 0.25% (residual term to final maturity 6 months or less)
    - A+ to BBB-: 1.00% (residual term to final maturity greater than 6 and up to and including 24 months)
    - A+ to BBB-: 1.60% (residual term to final maturity exceeding 24 months)
    - BB+ to B-: 8.00%
    - Bellow B-: 12.00%
    - Unrated: 8.00%
  - Qualifying:
    - 0.25% (residual term to final maturity 6 months or less)
    - 1.00% (residual term to final maturity greater than 6 and up to and including 24 months)
    - 1.60% (residual term to final maturity exceeding 24 months)
  - Other:
    - BB+ to BB-: 8.00%
    - Bellow BB-: 12.00%
    - Unrated: 8.00%

*IMF | ZIMBABWE     FSSR Follow Up Technical Assistance—Implementation of the Basel II/III Capital Framework*

### 20. The RBZ should assess Large Exposures relative to Tier 1 Capital in line with the

### 1zweea2023001 - 20. The RBZ should assess Large Exposures relative to Tier 1 Capital in line with the

### Large exposures assessment and scope
- Basel III [LEX10.8]: “the sum of all    exposure values of a bank to a counterparty or to a group of connected counterparties must be defined as a large exposure if it is equal to or above 10 percent of the bank’s Tier1 capital”.
- Current RBZ practice evaluates large exposures against a broader base (Capital Base instead of Tier 1 Capital), which:
  - raises the cap; and
  - may exclude counterparties that should be treated as large exposures according to Basel III Framework.
- Basel III requires banks to report:
  - all exposures equal to or above 10% of the bank's Tier 1 capital;
  - all other exposures without the effect of CRM being taken into account equal to or above 10% of the bank's Tier 1 capital;
  - all the exempted exposures with values equal to or above 10% of the bank's Tier 1 capital;
  - their largest 20 exposures to counterparties included in the scope of application, irrespective of the values of these exposures relative to the bank's Tier 1 capital. [LEX20.4]

### Definition of connected counterparties / common enterprises
- RBZ definition of “common enterprises” follows the Basel III Framework definition of “connected counterparties”.
- Basel III Framework establishes criteria for identification of connected counterparties due to:
  - control relationship [LEX10.13]; and
  - economic interdependence [LEX10.17].
- Identification characteristics:
  - Control relationship criteria are more objective and RBZ regulation is in line with Basel for control relationships.
  - Economic interdependence identification is qualitative; RBZ regulation is brief and does not explicitly mention some Basel criteria (notably Basel criteria 2, 5 and 6 related to guarantees exchange and contagion from counterparties’ financial problems).
- RBZ qualitative criteria that are included:
  - “(a) the expected source of repayment of loans or advances for a pair or group of borrowers is the same for each or every borrower” (meets Basel criterion 4 and partly criterion 7).
  - “(c) a pair or group of persons is engaged in businesses that are financially interdependent to a substantial degree” (covers concepts in Basel criteria 1 and 3).

### RBZ large exposure limits and concentration treatment
- RBZ regulation establishes special limits:
  - limit of 25 percent Capital Base to exposures from single persons and common enterprises;
  - limit of 75 percent Capital Base to exposures from corporate groups (Figure 2).
- Figure summary (as presented):
  - single person, partnership or common enterprise: <= 25% Capital Base
  - single corporate group: <= 75% Capital Base
  - single member of a corporate group: <= 25% Capital Base
  - aggregate large exposures: <= 800% Capital Base
  - (Basel III comparator shown as) <= 25% Tier 1 Capital
- Observations:
  - A limit of this magnitude (75% Capital Base for corporate groups) may weaken the effectiveness of the large exposures measure as a backstop to risk-based capital requirements [Basel III “LEX10.2”].
  - The FSSR report (February/2019) noted elevated credit concentration, reporting gaps where exposures from groups are not aggregated, and exceptions granted for groups up to 75 percent of capital in some banks.

### Exemptions, CRM and offsetting in large exposures calculation
- Basel III Framework exempts a few operations and counterparties and recognizes CRM techniques [LEX 30.13] and offsetting schemes [LEX 30.22-30.30] for exposures’ calculation.
- RBZ regulation defines operations that are exempted for the calculation of large exposures even if the exemption represents a CRM or offsetting.
  - This approach is more conservative in practice because it treats risk mitigation of exposures as full exemptions.
  - Adequate classification of deductions applied to the exposures’ measurement due to CRM techniques, offsetting or exemptions is important for banks to comply with Basel III reporting requirements for large exposures.

### Leverage ratio treatment
- Zimbabwe leverage ratio requirement is designed similarly to Basel III:
  - exposures comprise total assets and include off-balance sheet items.
  - capital measure is aligned with the Tier 1 capital definition of Basel II.
  - prudential adjustments to Tier 1 are not deducted from the exposure measure (this needs reassessment as capital definition is updated to Basel III).
- RBZ regulation does not consider the special treatment for derivatives and SFTs in the Leverage Ratio calculation. The mission noted the derivatives market in Zimbabwe is reduced, so absence of special treatment does not currently cause harm to the exposure measure.
- Note in Basel III: all prudential adjustments in Tier 1, related to assets, may be deducted from the exposure measure.

### Recommendations for updating and implementing the Basel II/III Framework
- The RBZ should consider updating its regulations to the Basel II/III Framework. Areas for updating include:
  - capital definition;
  - standardized approaches for credit, operational and market risks;
  - reviews of large exposures and leverage ratio frameworks.
- Updated drafts will facilitate implementation of impact assessment; review of the prudential report (BSD1) and undertaking impact studies are needed.
- Specific capital-related recommendations:
  i. Review the capital composition in line with Basel III Framework: implement stricter Basel III capital definition, including prudential adjustments and additional features for capital instruments, assess applicability of some capital deductions and possible simplifications.
  ii. Implement the requirement for the capital conservation buffer.
- BSD should conduct a quantitative impact study (QIS) based on the new draft to review industry situation under new capital concepts and requirements, collecting data on gross capital components, prudential adjustments, capital instrument characteristics, and RWA components.

### Capital definition, buffers and instruments (Basel III highlights)
- Basel III Total Capital is composed by Common Equity Tier 1 (CET1), Additional Tier 1 and Tier 2.
- CET1 components per Basel III CAP10:
  - issued common shares and similar instruments;
  - stock surplus (share premium);
  - retained earnings, including interim profit/loss;
  - accumulated other comprehensive income and other disclosed reserves;
  - minority interest;
  - regulatory adjustments.
- CET1 regulatory adjustments - assets deducted in full include (as listed):
  - Gain on sale related to securitization transactions;
  - Goodwill and other intangibles;
  - Investments in the capital of financial institutions or in own shares;
  - Deferred tax assets related to operation losses;
  - Benefit pension fund assets with restricted access by the bank;
  - Minority interest held by third parties;
  - Cash Flow hedge reserve;
  - Shortfall of the stock of provisions to expected losses;
  - Cumulative gains/losses from changes in own credit risk on fair valued liabilities;
  - Non-significant investments in banking, financial and insurance entities not consolidated.
- Assets partially deducted (“basket” < 15% of the CET1) include:
  - Significant investments in banking, financial and insurance entities not consolidated;
  - Deferred tax assets related to temporary differences;
  - Mortgage Servicing Rights (MSRs).
- Capital instruments under Basel III must absorb losses while the institution is functioning:
  - Additional Tier 1 and Tier 2 instruments should be subject to write-off or conversion into shares in determined situations or if the point of non-viability is reached.
- Basel III minimum capital requirements introduce:
  - higher CET1 preponderance and buffer requirements (conservation, countercyclical, systemic);
  - CET1 should be used first to fulfill minimum requirement and remaining amount should contribute to capital buffers.
- Zimbabwe context:
  - Zimbabwe already has the systemic buffer, though the requirement should be satisfied with Tier 1 capital.
  - Reported averages in March 2023: Tier 1 capital ratio of 27.9 percent and Total Capital of 41.1 percent (reported by banks), indicating a comfortable solvency position relative to stricter Basel III definitions.
- Implementation steps recommended:
  - Implement the stricter Basel III capital definition and prudential adjustments;
  - Implement capital conservation buffer;
  - Conduct QIS for transition impacts.

### Standardized approach for credit risk — key changes
- Basel III standardized approach aims to improve risk-sensitivity, reduce dependence on external ratings and ensure suitability of the approach.
- Key changes and new exposure categories:
  - Unrated exposures – banks & corporates: more granular approach.
  - Banks – rated exposures: some RW recalibration, more granular treatment.
  - Corporates: more granular, new categories – Corporate SME, Specialised Lending.
  - Covered Bonds: new exposure category.
  - Residential Real Estate: more risk-sensitive, RW according to LTV ratios.
  - Retail: more granular, new “transactors” & “revolvers”.
  - Commercial Real Estate: more risk-sensitive (Basel II had flat 100% RW).
  - Subordinated debt & equity: more granular RWs (100% RW in Basel II).
  - Off-balance sheet items: positive CCFs (10%, Basel II- 0%) for unconditionally cancellable commitments (UCCs).
  - Defaulted exposures: new definition of default, aligns with IRB definition.
- New asset classes added compared to Basel II include: Covered Bonds, Equity and Subordinated Debt, Specialized Lending, Acquisition/Development/Construction exposures.

*IMF | ZIMBABWE     FSSR Follow Up Technical Assistance—Implementation of the Basel II/III Capital Framework | chapter content provided*

### 36. The RBZ should consider updating in the current capital requirement for credit

### 36. The RBZ should consider updating in the current capital requirement for credit risk in line with the Basel III Standardized Credit Risk Assessment (SCRA) approach

### Credit risk: adoption of Basel III SCRA and associated changes
- Recommendation: RBZ should consider updating the current capital requirement for credit risk in line with the Basel III Standardized Credit Risk Assessment (SCRA) approach.
- Scope of changes to consider:
  - introduction of new asset classes and concepts;
  - review of the risk weights (RWs) applicable to the different asset classes, specially SCRA to unrated credit exposures (as summarized in Table 8 of Appendix IV).
- Basel III improvements to increase granularity and risk sensitivity (listed in the source):
  - i. residential and commercial real estate have more risk-weight granularity according to the loan-to-value (LTV) ratio and the dependence on cash flow of the property;
  - ii. retail exposures related to credit card and overdrafts can receive lower RW;
  - iii. the bank exposure has new RWs varying with the counterparty grades;
  - iv. new RWs have been introduced for corporate exposure, contemplating investment grade and small and medium enterprises (SME);
  - v. exposure to funds that should be treated according the funds portfolios.
- Quantitative impact assessment recommendation:
  - Conduct quantitative studies to assess impacts of new concepts, asset classes and RWs available in the Basel III Standardized Approach.
  - Data collection should include granular information about:
    - applicable treatment to each individual asset class;
    - credit conversion factor (CCF);
    - constituted provisions;
    - the RWs available in Basel III Framework, together with the current treatment.
  - Important to detail concepts such as past due loans and defaulted exposures to better assess impact.

### Derivatives, counterparty credit risk (CCR) and credit risk mitigation (CRM)
- Recommendation: RBZ should consider maintaining the use of Basel II CEM to treat derivative exposures and the comprehensive approach from CRM for (SFTs) to avoid CCR methodological complexity.
- Rationale: Both the SA-CCR and the IMM methodologies demonstrate an elevated detailing and may be burdensome and unsuitable for the Zimbabwean context.
- CRM supervisory haircuts:
  - Updating the supervisory haircuts in the RBZ comprehensive approach for CRM is recommended, but not crucial.
  - Current Zimbabwe CRM methodology contains less granular and lower supervisory haircuts for collaterals in the comprehensive approach (Guideline 001- 3.16.19) than in Basel III Framework (CRE20.50).
  - Considering institutions in Zimbabwe only use the simple approach, supervisory haircuts update is recommended, although not crucial.

### Operational risk: move to Basel III Standardized Approach and data implications
- Recommendation: RBZ should consider adopting the new Basel III Standardized Approach for operational risk to replace the current Basel II Alternative Standardized Approach.
- Regulatory recommendations:
  - New regulation should establish ILM = 1 as well as update the requirements for public disclosure of quantitative data on operational risk exposures.
- Conceptual features of the Basel III Standardized Approach (from source):
  - operational risk increases at an increasing rate with a bank’s income (represented by a marginal coefficient 훼 applied to the BI component);
  - banks which have experienced greater operational risk losses historically are more likely to experience operational risk losses in the future (represented by the Internal Loss Multiplier - ILM-component).
- BI component structure and data requirements:
  - Business Indicator (BI) reclassified into components: ILDC (Interest, leases and dividend component), SC (services component), FC (financial component).
  - ILDC = min (abs (interest income – interest expense), 2.25% x interest earning assets) + dividend income
  - SC = max (other operating income, other operating expense) + max (fee income, fee expense)
  - FC = abs (net P&L trading book) + abs (net P&L banking book)
  - Calculation requires estimation of incomes and expenses (or P&L) and will require banks to review systems responsible for data collection.
- ILM applicability and requirements:
  - The calculation of the ILM component is required only for banks with BI > EUR 1 billion.
  - If a bank falls into the lowest α bucket (BI ≤ 1 billion euros), ILM would be set equal to 1.
  - In this case, the bank would not need to create and maintain the 10-years internal losses data base, currently only required to the use of AMA in the RBZ regulation.
  - Note: an internal loss database is still a relevant granular data source for operational risk management and supervision.
- BSD QIS recommendation for operational risk:
  - BSD should conduct a QIS to facilitate calibration to the Zimbabwean financial environment and develop a questionnaire to collect data from all banks to assess:
    - i. impact of the new methodology in capital requirement level and estimate an adequate time period for full implementation;
    - ii. the scope of BIs, which may be simplified in line with existing financial activities in Zimbabwe and those expected to develop;
    - iii. banks’ capacity to collect data for BI components calculation and challenges in shifting to this calculation;
    - iv. the requirement for ILM calculation: if banks fall into the lowest α bucket, ILM would be equal to 1, avoiding the need for a 10-years internal losses database. Options:
      - set ILM = 1 initially to focus implementation on data collection for BI components and consider ILM calculation in a subsequent phase;
      - if banks already have well-developed internal losses databases, RBZ could consider implementing the ILM at least as a cap (not higher than 1) to encourage completion of the database.
    - v. eventual calibration of the marginal coefficient (α): α buckets are calibrated to fit internationally active banks’ parameters and may be overestimated for the Zimbabwean market, which could make all banks fall into the lower bucket (α = 12%). The RBZ may assess recalibration of α given domestic market characteristics.
- BI marginal coefficient buckets (preserve exact figures):
  - Bucket 1: BI range (in €bn) ≤ 1 — BI marginal coefficients (훂훂i) 12%
  - Bucket 2: BI range (in €bn) 1 < BI ≤ 30 — BI marginal coefficients (훂훂i) 15%
  - Bucket 3: BI range (in €bn) > 30 — BI marginal coefficients (훂훂i) 18%
- Additional operational risk metrics (from source):
  - LC = Loss Component: 15 times average annual operational risk losses incurred over the previous 10 years

### Market risk: adopt Basel III Simplified Standardised Approach (SSA) and TB-BB definitions
- Recommendation: RBZ should consider updating its Trading Book – Banking Book (TB-BB) definition requirements in line with the Basel III Framework [RBC25], and update the Standardized Approach for market risk to align with the Basel III SSA.
- TB-BB regulatory changes recommended:
  - i. Clarify “MUST” and “PRESUMED” requirements for TB-BB classification: incorporate the list of instruments that must be allocated to the trading book (RBC25.1-RBC25.6), the list that must be allocated to the banking book (RBC25.7-RBC25.8), and a list of instruments “presumed” to be in the trading book (RBC25.9) requiring supervisory approval for deviations.
  - ii. Supervisors should institute procedures for assessing presumed deviations and changes in financial instrument classification (RBC25.10, RBC25.16). Require banks to make available reports describing rationale for trading book inclusion and compliance (RBC25.11-RBC25.12).
  - iii. Establish rules for TB-BB switching: strict limit on movements between books by banks’ discretion (RBC25.14). If capital requirement reduction results from a move (only with supervisory approval), difference in capital requirement at time of move should be required as a fixed, additional Pillar 1 capital requirement until maturity (RBC25.15).
  - iv. Enhance requirements for the treatment of Internal Risk transfer: update regulations to include specifications (RBC25.18-RBC25.27).
- Alignments to SSA market risk methodology:
  - i. apply the scaling factors to the parcels, as illustrated in Figure 8;
  - ii. align the methodology for the calculation of capital requirement to specific risk with the methodology for the calculation of capital requirements for credit risk;
  - iii. assess the need to include parcels for equity risk (MAR40.41-MAR40.52) and commodities risk (MAR40.63-MAR40.73) as guidance for banks with exceptional exposures.
- SSA scaling factors (exact figures preserved):
  - SFIRR = 1.30
  - SFFX = 1.20
  - SFEQ = 3.50
  - SFCOMM = 1.90
- BSD QIS recommendation for market risk:
  - Conduct a QIS to assess impact of Basel III SSA implementation and develop a questionnaire to collect data on:
    - i. application of scaling factors to SSA metrics’ components;
    - ii. inclusion of parcels to calculate capital requirements for equity risk and commodities risk, as applicable;
    - iii. confirm adequacy of banks’ systems in identifying TB-BB portfolios.

### Large exposures: limits, monitoring, and regulatory alignment
- Status and monitoring:
  - RBZ should continue to review and prime its monitoring system for the treatment of large exposures to corporate groups.
  - Large exposures are being closely monitored on a weekly basis by the RBZ, as recommended in the FSSR report of 2019.
  - Important to assess data on the distribution of large exposures in banks’ portfolios to promote compliance with counterparty limits and to define a transition strategy to Basel III standards.
- Recommendations to revise large exposures regulation:
  - i. Replace the Capital Base by Tier 1 Capital for the identification of large exposures (>=10% Tier1 Capital) and the calculation of the large exposures limit (<= 25% Tier 1 Capital);
  - ii. Adjust large exposures limit requirements in line with Basel III Framework - LEX <= 25% Tier 1 Capital to each single or group of connected counterparties; consider planning a transition period to align requirements for corporate groups with Basel III standard;
  - iii. Improve criteria for economic interdependence identification: provide thorough clarification of the concept and review current criteria in line with LEX10.17 of the Basel Framework;
  - iv. Revise exemptions in paragraph 40 of current RBZ regulation in line with Basel III recommendations for CRM techniques (LEX30.7-LEX30.21), offsetting schemes (LEX30.22-LEX30.30) and exemptions (LEX30.31-LEX30.36), assessing elimination of exemptions that do not comply with Basel III (e.g. 40(f));
  - v. Require banks to immediately inform supervisors of breaches on the limit: current paragraph 41 requires banks to “promptly bring the loan or advance into conformance”, but misses the requirement to immediately communicate the breach to supervisor, as recommended in LEX 20.3 of the Basel Framework.

*Source: 1zweea2023001 - 36. The RBZ should consider updating in the current capital requirement for credit*

### 51. Based on the new draft, BSD should conduct a QIS to assess the impact of the

### 1zweea2023001 - 51. Based on the new draft, BSD should conduct a QIS to assess the impact of the

### A. Large Exposures — QIS and data collection
- Recommendation: BSD should conduct a QIS to assess the impact of the review on the RBZ’s Large Exposures regulation in the banks’ compliance to the limits.
- If necessary, RBZ should collect additional data on large exposures from all banks in order to assess:
  - i. the change in the metric’s reference from Capital Base to Tier1 Capital;
  - ii. eventual adjustments in the composition of a group of connected counterparties due to more clarification on the criteria for the identification of connected counterparties due to economic interdependence;
  - iii. the strategy to align the requirements to corporate groups with Basel III standards.
- Reference guidance: Basel III Framework: “LEX 20.3 Breaches of the limit, which must remain the exception, must be communicated immediately to the supervisor and must be rapidly rectified.”

### B. Leverage Ratio
- Recommendation: The capital definition and the exposure measure for the calculation of the Leverage Ratio should be updated in line with Basel III Framework.
- Specifics:
  - The exposure measure should be updated considering the prudential adjustments related to assets in Tier 1, to maintain consistency between numerator and denominator.
  - RBZ should assess if the special treatment to SFTs and derivatives is necessary.
  - If such special treatment becomes effective, RBZ should consider:
    - the comprehensive approach for SFTs; and
    - the Basel II CEM approach for derivatives.

### C. Reporting templates (BSD1)
- Recommendation: The RBZ should review the current BSD1 prudential reporting templates to ensure incorporation of all changes from the updated capital regulatory framework.
- Rationale:
  - The BSD1 framework consolidates reporting templates that provide information to BSD to conduct the assessment of compliance with prudential capital requirements and operational limits of supervised entities.
  - Information reported to supervisors under Basel III should satisfy the granularity needed to conduct ongoing off-site supervision processes.
  - It is expected that changes in prudential regulation proposed in this TA will need to be reflected in some BSD1 worksheets.

### D. Structure of the Banking Sector (as of March 31, 2023) — key banks and market shares
- Total assets (aggregate): ZW$5,676,249,421,354.56; Market share total: 100.00%
- Selected banks (TOTAL ASSETS (ZW$) — MARKET SHARE (%)):
  - CBZ Bank: 1,130,050,234,770.55 — 19.91% (Mixed, Zimbabwe, +)
  - Stanbic Bank: 918,650,864,507.17 — 16.18% (Foreign, South Africa, +)
  - Ecobank: 739,198,108,189.91 — 13.02% (Foreign, Togo, +)
  - CABS: 442,191,703,712.68 — 7.79% (Foreign, Zimbabwe, +)
  - FBC Bank: 384,480,543,152.44 — 6.77% (Mixed, Zimbabwe, +)
  - ZB Bank: 280,932,959,100.53 — 4.95% (Local Private, Zimbabwe, +)
  - First Capital Bank: 232,342,278,025.32 — 4.09% (Foreign, Malawi, +)
  - BancABC: 485,447,943,743.94 — 8.55% (Foreign, Zimbabwe, +)
  - Standard Chartered Bank: 158,979,840,529.56 — 2.80% (Foreign, England, +)
  - Nedbank: 103,766,143,893.50 — 1.83% (Foreign, South Africa, +)
  - NMB Bank: 183,751,326,408.78 — 3.24% (Foreign, Zimbabwe, +)
  - Steward Bank: 140,020,529,948.00 — 2.47% (Local Private, Zimbabwe, +)
  - Metbank: 166,681,717,235.00 — 2.94% (Local Private, Zimbabwe, +)
  - AFC Commercial Bank: 124,208,300,016.33 — 2.19% (State, Zimbabwe, +)
  - POSB: 48,621,261,619.69 — 0.86% (State, Zimbabwe)
  - FBC Building Society: 53,091,909,639.42 — 0.94% (Mixed, Zimbabwe, +)
  - National Building Society: 64,137,033,951.54 — 1.13% (State, Zimbabwe)
  - ZB Building Society: 19,696,722,910.20 — 0.35% (Local Private, Zimbabwe, +)

### E. Banking Sector Indicators (selected figures, exact values preserved)
- Key Indicators by date (Benchmark, Mar-22, June-22, Sept-22, Dec-22, Mar-23):
  - Total Assets:
    - Mar-22: $969.24bn (USD6.81bn)
    - June-22: $1.94tn (USD5.30bn)
    - Sept-22: $3.11tn (USD5.00bn)
    - Dec-22: $3.81tn (USD5.67bn)
    - Mar-23: $5.68tn (USD6.11bn)
  - Total Loans & Advances:
    - Mar-22: $320.36bn (USD2.25bn)
    - June-22: $603.14bn (USD1.65bn)
    - Sept-22: $1.01tn (USD1.63bn)
    - Dec-22: $1.29tn (USD1.92bn)
    - Mar-23: $1.97tn (USD2.12bn)
  - Net Capital Base:
    - Mar-22: $170.00bn (USD1.19bn)
    - June-22: $349.48bn (USD0.95bn)
    - Sept-22: $535.96bn (USD0.86bn)
    - Dec-22: $746.30bn (USD1.11bn)
    - Mar-23: $1.01tn (USD1.09bn)
  - Core Capital:
    - Mar-22: $138.21bn (USD0.97bn)
    - June-22: $284.74bn (USD0.78bn)
    - Sept-22: $438.11bn (USD0.70bn)
    - Dec-22: $611.11bn (USD0.91bn)
    - Mar-23: $803.08bn (USD0.86bn)
  - Total Deposits:
    - Mar-22: $582.26bn (USD4.09bn)
    - June-22: $1.12tn (USD3.06bn)
    - Sept-22: $1.91tn (USD3.07bn)
    - Dec-22: $2.29tn (USD3.11bn)
    - Mar-23: $3.17tn (USD3.41bn)
  - Net Profit:
    - Mar-22: $27.05bn (USD0.19bn)
    - June-22: $181.25bn (USD0.49bn)
    - Sept-22: $342.28bn (USD0.55bn)
    - Dec-22: $503.13bn (USD0.75bn)
    - Mar-23: $207.25bn (USD0.22bn)
  - Return on Assets:
    - Mar-22: 3.39%
    - June-22: 8.67%
    - Sept-22: 16.48%
    - Dec-22: 17.43%
    - Mar-23: 4.92%
  - Return on Equity:
    - Mar-22: 12.43%
    - June-22: 31.60%
    - Sept-22: 53.19%
    - Dec-22: 54.33%
    - Mar-23: 16.62%
  - Capital Adequacy Ratio (benchmark 12%):
    - Mar-22: 35.16%
    - June-22: 33.87%
    - Sept-22: 35.45%
    - Dec-22: 37.51%
    - Mar-23: 41.05%
  - Tier 1 Ratio (benchmark 8%):
    - Mar-22: 26.97%
    - June-22: 18.84%
    - Sept-22: 23.97%
    - Dec-22: 26.92%
    - Mar-23: 27.85%
  - Loans to Deposits Ratio (benchmark 70%):
    - Mar-22: 55.02%
    - June-22: 53.69%
    - Sept-22: 52.83%
    - Dec-22: 55.67%
    - Mar-23: 62.09%
  - NPLs Ratio (benchmark 5%):
    - Mar-22: 1.57%
    - June-22: 1.50%
    - Sept-22: 1.41%
    - Dec-22: 1.58%
    - Mar-23: 3.30%
  - Liquidity Ratio (benchmark 30%):
    - Mar-22: 61.38%
    - June-22: 60.78%
    - Sept-22: 59.51%
    - Dec-22: 59.50%
    - Mar-23: 57.65%
- Note: Profitability indicators are based on cumulative earnings with December figures based on annual earnings and March, first quarter earnings.
- Chart data points (Total Loans, Billions): Dec-18: 4.07; Dec-19: 12.63; Dec-20: 82.41; Dec-21: 229.02; Dec-22: 1,293.51; Mar-23: 1,969.12

### F. Banking Sector Assets and Liabilities composition (as of March 2023)
- Assets composition (percentages preserved):
  - LOANS, ADVANCES, BANKERS ACCEPTANCES AND LEASES: 31.57%
  - BALANCES WITH CENTRAL BANK: 12.04%
  - BALANCES WITH FOREIGN INSTITUTIONS: 9.90%
  - SECURITIES AND INVESTMENTS: 11.34%
  - OFF-BALANCE SHEET ITEMS: 9.51%
  - FIXED ASSETS: 9.07%
  - BSD -BS OTHER ASSETS: 5.14%
  - BALANCES WITH DOMESTIC BANKING INSTITUTIONS: 3.25%
  - FOREIGN CLAIMS (INCLUDING BILLS OF EXCHANGE): 0.50%
  - REPOSSESSED PROPERTIES / ASSETS: 0.22%
  - ASSETS IN TRANSIT: 0.21%
  - DOMESTIC NOTES AND COIN: 7.25%
- Liabilities composition (percentages preserved):
  - TOTAL DEPOSITS: 54.11%
  - CAPITAL AND RESERVES: 17.29%
  - OTHER LIABILITIES: 10.76%
  - OFF-BALANCE SHEET ITEMS - LIABILITIES: 9.51%
  - FOREIGN LIABILITIES: 6.86%
  - BALANCES WITH OTHER BANKING INSTITUTIONS: 0.84%
  - LIABILITIES IN TRANSIT: 0.31%
  - SECURITIES AND OTHER FUNDING LIABILITIES: 0.31%

### G. Capital composition in Zimbabwe (definitions and deductions)
- Capital Tier 1 is composed of:
  - issued and fully paid up ordinary shares or common stock;
  - paid up non-cumulative irredeemable preference shares;
  - reserves consisting of:
    - a. non-repayable share premiums;
    - b. disclosed reserves created by a charge to net income in the financial year immediately preceding the current one;
    - c. published retained earnings for the current year, including interim earnings, where these have been verified by external auditors; and
  - minority interests in subsidiaries arising on consolidation.
- Capital Tier 2 is composed of:
  - the current financial year’s unpublished profits where provisions for taxation, dividends and bad debts have been made;
  - the full extent of fixed assets revaluation reserves where they are carried through to the balance sheet;
  - revaluation reserves arising from the holding of equity securities at historic cost and not at market values to the extent of 55% of the reserve;
  - general bad debt provisions to the extent of 1,25% of total risk weighted assets;
  - the full extent of any subordinated term debt (loan capital) whose remaining term to maturity is more than five years, and so much of any subordinated term debt whose remaining term to maturity is five years or less as is calculated by amortizing or discounting such debt by a cumulative factor of 20% per year of the remaining term to maturity, provided that this element will not be included to the extent that it exceeds 50% of the core capital of the banking institution;
  - hybrid (debt/equity) capital instruments such as cumulative preference shares which are unsecured and fully paid up and are available to meet losses;
  - equity funded through the capitalization of revaluation reserves;
  - the full extent of any minority interests in cumulative redeemable preference shares; and
  - such hidden reserves as the RBZ may agree to be included in supplementary capital.
- Deductions in the Zimbabwe Capital Base:
  - From the Tier 1:
    - a. the current financial year’s unpublished losses;
    - b. goodwill;
    - c. equity funded through the capitalization of revaluation reserves
  - From gross capital:
    - a. investments in or lending of a capital nature to subsidiaries engaged in banking and financial activities which are not consolidated
    - b. encumbered assets - funds acquired by using the bank’s capital funds which have subsequently been pledged as collateral for borrowings or are encumbered by any caveats rendering them unavailable to meet losses arising from the institution’s operations

### H. Risk Weights for Credit Risk — summary observations and recommended updates
- General recommendation: The RBZ should consider adoption of Basel III risk weights, Basel III asset class definitions, and updates to credit conversion factors and methodologies in multiple areas.
- Specific observations and recommendations (preserving phrasing and numeric ranges):
  - Domestic Sovereign:
    - Basel II / Zimbabwe: 0% funded in same currency; Rated 0-150%; Unrated 100%
    - Basel III: 0% funded in same currency; Rated 0-150%; Unrated 100%
    - Observation: The RBZ should consider the use of Basel III risk weights
  - Foreign Sovereign:
    - Basel II / Zimbabwe / Basel III: 0% funded in same currency; Rated 0-150% (varies); Unrated 100%
    - Observation: The RBZ should consider the use of Basel III risk-weights
  - Public Sector Entities:
    - Based on Sovereign (National Discretion if there is revenue raising power)
    - Basel II / Zimbabwe / Basel III: Rated 20 - 150%; Unrated 100%
    - Observation: The RBZ should consider the use of Basel III risk-weights
  - Banks:
    - Basel II: Rated 20-150%; Options 1 or 2 (Unrated 100 or 50%)
    - Zimbabwe: Rated 20-150%; Unrated 50%
    - Basel III: Rated 20-150%; Unrated 50%
    - Observation: The RBZ should consider the use of SCRA methodology considering the sovereign risk floor for FX transactions
  - Multilateral Development Banks:
    - Basel II / Zimbabwe / Basel III: 0% for highly rated; Option 2 banks - 20-150%; Unrated 50%
    - Observation: African Export-Import Bank is not present in Basel III list
  - Subordinated Debt, Equity and Capital Instruments:
    - Basel II / Zimbabwe indicate deductions or high risk weights (e.g., Speculative unlisted equity 400%; Other equity 100% or 250%)
    - Observation: Risk weights should be updated
  - Securities Firms, Corporates:
    - Corporates (Basel III): Investment grade 65%; Corporate SME 85%
    - Observation: The RBZ should consider the use of the new Basel III risk-weights
  - Regulatory Retail:
    - Basel II / Zimbabwe: 75%
    - Basel III: Transactors 45%; Retail 75%; Household not retail 100%
    - Observation: The transactors risk weight should be included
  - Residential Real Estate:
    - Basel II / Zimbabwe: 35% - LTV < 80%
    - Basel III: Not materially dependent - 20 - 30% LTV <80%; 40 – 70% LTV >80%; Materially dependent – 30 - 45% LTV <80%; 60 – 105% LTV >80%
    - Observation: The Basel III asset class definition and the new risk weights should be included
  - Commercial Real Estate:
    - Basel II / Zimbabwe: 100%
    - Basel III: Not materially dependent - Min (60%, RW of counterparty) LTV < 60%; RW of counterparty LTV > 60%; Materially dependent - 70% LTV < 60%; 90% LTV 60% <> 80%; 110% LTV > 80%
    - Observation: The Basel III asset class definition and the new risk weights should be included
  - Other Real Estate, Land acquisition, development and construction:
    - Basel II / Zimbabwe: RW counterparty or specific higher weights; Land acquisition, development and construction - 100%; Residential and 150% other
    - Observation: The Basel III asset class definition and the new risk weights should be included
  - Securitisation:
    - Basel II / Zimbabwe / Basel III: Rated: Long term 20 - 150%; B+ or lower - deduction; Short term 20-100%; Unrated - deduction
    - Observation: senior - look through; second loss - max(100%, high underlying); Liquidity facilities - high underlying
  - Past Due / Defaulted exposures (90 days delay / 90 days + problematic exposures):
    - Provision < 20% - 150%
    - Provision < 50% - 100%
    - Provision > 50% - 50% (Supervisory discretion)
    - Observation: Update the asset class definition
  - Covered Bonds:
    - Rated 20-100%; Unrated 10-100% dependent on the issuing bank
    - Observation: Introduce the new asset class
  - Specialised Lending:
    - In Basel II and Zimbabwe (Corporates)
    - In Basel III - rating of the project, not the counterparty, following corporates. Project Finance - 130% Pre-Operational Phase; 100% or 80% Operational Phase. Object Finance - 100%. Commodities Finance - 100%
    - Observation: Introduce the new asset class
  - Off Balance Sheet — Commitments:
    - Basel II / Zimbabwe: Commitments 20% (<3 months); 50% (>3 months); Unconditionally Cancellable 0%
    - Basel III: Commitments 40%; Unconditionally Cancellable 10%
    - Observation: Update the credit conversion factors

*Source: IMF | ZIMBABWE FSSR Follow Up Technical Assistance—Implementation of the Basel II/III Capital Framework*

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_Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1zweea2023001.pdf_