Gold coin the panacea to the challenge of prescribed assets: Mangudya

0
John Mangudya, Governor of the Reserve Bank of Zimbabwe

By Melody Chikono
Reserve Bank of Zimbabwe Governor John Mangudya said the newly introduced gold coin would solve the conundrum of mandated assets for the pensions industry which is struggling to comply with minimum regulatory requirements.

This was caused by inflationary pressures and the industry proposed the issuance of foreign currency bonds with the same status to improve compliance.

Prescribed assets are bonds or securities issued by government, local government, quasi-governmental organizations or any other obligation that can be accorded prescribed asset status.

Mangudya said NewsDay Business last week that the performance of prescribed assets has been affected by the loss in value and that the gold coin will go a long way in preserving value.

“If pension funds buy these gold coins, they are able to take a strong position. Remember that it also has a liquid asset status and can be easily converted into cash. This means that the 20% they are allowed to buy in government bonds can be met. The gold coin is part of that paper they are supposed to get,” he said.

“You know they said that the available projects are losing value due to inflation, this gold coin will stabilize the price. It also means that the money they have in the bank will have a reserve of value. They now have the choice of keeping the silver or the gold coin. Without a doubt, the gold coin is going to suck all the excess liquidity out of the market.”

In Zimbabwe, pension funds are required by law to invest at least 20% of their investment portfolio in prescribed assets, while life insurers are required to invest a minimum regulatory threshold of 15% of their assets in prescribed securities.

Short-term life insurers and pensions are required to invest 10% in prescribed assets.

Mangudya said the gold coin had prescribed asset and liquid asset status.

According to Ipec’s first quarter industry report, compliance with industry-mandated assets was still lagging.

During the period, although the prescribed assets of the short-term insurers increased by 49.82% from $354.72 million, none of the short-term insurers met the prescribed minimum asset ratio by 10%.

Nine of the 11 life insurance players who submitted reports declared prescribed asset ratios below the required minimum threshold of 15% of total assets.

For funeral insurance, not all met the prescribed minimum asset ratio of 10%, with investments in prescribed assets representing on average only 0.11% of the total asset portfolio.

Pension funds recorded the second biggest jump of 235% since March 2021 investing in prescribed assets, but the compliance rate was still well below the prescribed minimum of 20% despite the approval of a number of instruments in the market with prescribed asset status.

Mangudya said the gold coin also presents business opportunities for industry and banks in the form of gold unit trusts.

The industry has blamed the inflationary environment and the constant revaluation of assets that new cash flows fail to match for their struggle to comply with mandated asset regulations.

  • Follow us on twitter @NewsDayZimbabwe


Source link

Share.

Comments are closed.