Following a cabinet directive last week for him to deal with the current banking sector liquidity crisis, Finance Minister Tendai Biti this week intervened in the market in a bid to alleviate the situation amid growing fears of looming bank collapses.

Biti's latest proposals were reinforced by measures announced by Reserve Bank Governor Gideon Gono on the same day, as government tries to prevent a meltdown in the financial services sector.

Biti and Gono announced a raft of measures designed to contain the liquidity crisis as pressure mounts on them to fix the problem. "After consultations with the Bankers Association of Zimbabwe and government, the Reserve Bank concluded on the need for the repatriation of all other nostro account balances in excess of banks' needs, pending international payment obligations and for the purposes of taking positions in the international market," Biti said.

"With effect from March 1, banks will be required to maintain in their nostro accounts a maximum of 25% of their balances off-shore. The maximum rises to 30% from June 1. This would also be in acknowledgement of the absence of a prudent statutory liquidity ratio."

A nostro account is an account held in a foreign country by a domestic bank, denominated in the currency of that country. They are used to facilitate settlement of foreign trade transactions.

Biti also dealt with banks' statutory reserves owed by the Reserve Bank and its lender of last resort position, the issuance of discountable paper instruments against the central bank's statutory reserve liabilities, infrastructure development bonds, bank mergers and legislative amendments.

This was the second time in three weeks Biti had been forced to intervene. He first intervened on January 25 with a series of proposals designed to calm the market. These included improving lines of credit and restoring the central bank's lender of last resort position.

Gono weighed in on January 31 to reinforce Biti's plan. He imposed withdrawal limits to prevent a run on the banks.

Zimbabwe has 26 banks and most of them are struggling due to chronic capitalisation and a prolonged liquidity crisis . Biti and Gono are pressuring small and weak banks to merge or look for partners.