AS financial institutions grapple to meet the deadline set out by the Reserve Bank of Zimbabwe (RBZ) it has emerged that those failing to comply with the new capital requirements would be forced
to merge or liquidated.
It emerged this week that nine financial institutions were not financially sound. Financial institutions have up to Thursday next week to shape up or wait for the wrath of RBZ.
In his maiden monetary policy statement last year RBZ governor Gideon Gono outlined new capital requirements for financial institutions.
Commercial banks have to raise $10 billion, building societies and finance houses $7,5 billion, while discount houses have to raise $5 billion.
Zimbabwe has 17 commercial banks, six merchant banks, eight finance houses, five building societies and eight discount houses, 31 asset management companies and various micro-finance institutions born out of the indigenisation crusade in the 1990s. This year, Barbican Bank and Intermarket were placed under curatorship after revelations that they were not financially sound while First National Building Society which was placed under curatorship in February last year is still closed.
Management at Trust was booted out as a condition for RBZ to inject liquidity support to breathe new life into the ailing institution. RBZ’s support has since turned into a huge weight on the bank driven by a 30% interest to a whopping $1,4 trillion.
In an interview with businessdigest early this month Gono said RBZ had come up with a policy for banks, Troubled Bank Resolution Strategy, to clean up the mess in the financial sector.
The policy would be introduced at the end of the month and is envisaged to clean out the mess of 2003 and 2004 in the banking sector.
“Just wait for September 30 and see what will have happened. But progress has been made as some of them (banks) are now running around ahead of the deadline”, Gono said.
The Troubled Bank Resolution strategy was necessitated by the would be marriage involving Kingdom Bank, ReNaissance Merchant Bank and African Banking Corporation to form a locally consolidated financial institution as revealed by businessdigest early this month.
Industry sources say the Troubled Bank Resolution Strategy is also based on the admiration of Amalgamated Banks of South Africa (Absa).
Absa was formed when Allied, United and Volkskas banks merged in 1991 and was joined by Bankorp – including Trust Bank and Bankfin – in 1992.
Analysts cautioned that the RBZ had to take a due diligence exercise in liquidating the financial institutions that fail to meet the capital requirements and fail to find a suitable partner in marriage.
Economic commentator and businessman Jonathan Kadzura said the winding up of financial institutions had to be managed “so that they will not have a crash landing that affects the shareholders, depositors and families”.
This year, CFX Merchant Bank merged with Century Holdings to form CFX Financial Services while a merger between Trust and Old Mutual was put on hold at the eleventh hour after revelations that Trust was not on a sound financial footing.
Analysts say the RBZ had to crack the whip to avoid prejudicing the public.
“Forcing banks to merge is one of the option other than making them raise the required capital. If that fails then the banks have to be liquidated so that the public will not be prejudiced,” said prominent economist Eric Bloch.
Bloch said the merger of banks would not take that long provided that the banks have adequate capital and that shareholders had vetoed the merger.
“CFX and Century merged because both shareholders gave the two institutions the greenlight to merge,” he said.
Zimbabwe, Bloch said, was overbanked with many financial institutions catering for a population of 12 million people.
“It is ridiculous to have over 70 banks, building societies, merchant banks, asset management and micro-finance institutions catering for a population of just 12 million,” said Bloch.
The International Monetary Fund (IMF) in its Annual Article IV Consultation said the Zimbabwean economy could not sustain the many banks available.
Led by Doris Ross, the IMF delegation was in Zimbabwe in March and said the country could not sustain the numerous banks that exist and required only seven banks.
Kadzura said mergers should take into cognisance the notion to add value to the product.
“There is no point to negotiate mergers that do not add value to shareholders and depositors,” he said.
Kadzura said banks that were negotiating for mergers needed to be given time. He said it was important to liquidate the financial institutions now before they have ripple effects on the sector.