According to information gleaned from the country’s financials institution this week; Zimbabwe might not witness a new bank or foreign investors coming on board soon.
Given the structure of the banking law and Zimbabwe Stock Exchange (ZSE) regulations, any significant injection of capital by foreign investors into a Zimbabwean bank would require upfront exemptions to be given to the potential investor by the Reserve Bank of Zimbabwe, the Ministry of Finance and the local bourse.
Exiled businessman Gilbert Muponda told businessdigest on Wednesday that: “Zimbabwe was a very high risk investment destination. Apart from banks look at Meikles Africa and Shabanie Mashaba Mines. All similar cases but treated differently. Laws are selectively applied so no foreign investor would want to come moreso in the financial sector.”
Coronation Financial Services economic analysts Lance Mambondiani said technically, it was easy to attract foreign investment into Zimbabwean banks since all sectors in the economy, particularly the financial sector, are facing liquidity constraints as a result of dollarisation.
“There are however several practical challenges such as the credibility of the Reserve Bank as an efficient, competent and impartial regulator, the stability of the sector itself after the 2003 crisis and whether the banking sector has the capacity to be profitable in a market generally considered as overbanked,” he said
“The Reserve Bank’s new capital requirements in terms of which banks are required to have a minimum capital of US$6,25 million whilst well intended, may be too high for a market where banks are hardly able to cover their overheads or pay their employees in US dollars.
“In my opinion, it is not likely that we will see an influx of foreign investors into the banking sector just yet,” Mambondiani said.
Economist Brains Muchemwa told businessdigest this week that while the environment might not be favourable for foreign investors it was important to find out if “banks were adequately capitalised to meet the demands of the economy, or whether we need more foreign investors to start new banks and inject more capital and expand credit creation to bring down cost of funds”.
The country’s banking regulations and rules are said to be impediments to bank mergers or takeovers with specific reference to foreign investors.
“Historically, Zimbabwean banking institutions have held their capital in Zimbabwe dollars and as a consequence were able to paper over inefficiencies, capital inadequacy and poor performance. Hyper-inflation used to mask a lot of mistakes,” an analyst with a commercial bank said.
However, dollarisation of the banking sector has left the players exposed as the Zimbabwe dollar tide disappeared, and left the institutions semi-naked, for all to see — warts and all. Everyone can now see who had been swimming naked.
Economic analyst John Robertson said foreign investors to not want to be treated like they are committing a crime to invest in the country.
“Investors always look for a friendly and rewarding environment. Ours has not been when compared to what is happening in other countries,” Robertson said.
“Foreign investors are even more cautious when it involves the financial sector, where a lot of money will be changing hands. Given the unfortunate incident when a lot of depositors have lost their money no one in their right mind will come to Zimbabwe,” he said.
For listed banks, in terms of the Zimbabwe Stock Exchange (ZSE) regulations, a foreign investor may only hold up to 10% of the issued share capital of a listed company, irrespective of whether it is a bank or banking institution.
The total shareholding that foreigners can collectively have in a listed company is 35%. Therefore, subject to structuring, the maximum shareholding that a foreigner can have in a listed banking institution is 35%.
“It is therefore difficult, under the current ZSE regulations, for a foreign investor to invest a significant chunk of capital into a Zimbabwean banking institution in return for only 10% or a maximum of 35% equity,” an analyst said.
In the event of a rights offer being made, it will take between 52 and 58 days to be complete if managed well.
Under ZSE rules, should the shareholding exceed 35%, the investor might be obliged to make a compulsory offer to the minorities and take over the entire institution.
An investment in a financial institution requires not only sufficient capital injection but also significant changes in the management and board of the institution, post investment that are directly controlled and regulated by the Reserve Bank.
Economist Eric Bloch said financial institutions had a great need to access international lines of credit, partially because their capital resources have also been eroded, and substantially because of the very considerable funding requirements of their clients.
“Zimbabwe’s bankers need to be conservative in their operations, but such conservatism should not be excessive,” Bloch said.
“In the interests of their own viability, their clients operations and the progression of economic recovery, they need to reassess their present, non-constructive stance. Their current policies are fuelling national illiquidity, which is slowing the critically needed economic recovery,” he said.