THE Bankers Association of Zimbabwe (BAZ) recently elected a new president — First Bank managing director John Mushayavanhu — who has an ambition to transform the country’s financial services sector.
The businessdigest’s chief reporter Paul Nyakazeya caught up with the veteran banker last week to talk about the state of the banking sector and government’s indigenisation and empowerment regulations, among other issues. Below are the excerpts.
Nyakazeya: What roles have you assumed and the key deliverables stakeholders should expect during your tenure in office?
Mushayavanhu: The banking sector is going through a difficult period — transaction volumes are low; the deposit base is low; there is limited interbank trading and there is no lender of last resort.
All these factors need to be addressed by banks working together (through BAZ) with authorities to bring back confidence in the sector and encourage a saving and banking culture.
I will be expected to co-ordinate this during my term of office. I will lobby the authorities to capacitate the central bank to enable it to play its role as lender of last resort. That way, the country will have a functional money market and an overnight lending rate which will become the barometer against which lending rates can be set.
I will also work with member banks to re-invigorate the national payments system and promote the use of plastic money by increasing the population and distribution of point of sale machines.
Nyakazeya: You spoke about the state of banks; what is your comment on the central bank’s decision to return assets to Trust Bank, Royal Bank and Barbican that were amalgamated into the Zimbabwe Allied Bankers Group?
Mushayavanhu: We welcome this development and look forward to work with the new owners in restoring confidence in the banking sector.
Nyakazeya: The local deposit base has stagnated at about US$1,3 billion since the beginning of the year, what do you attribute this to?
Mushayavanhu: It is attributed to a number of factors, chief among them the lack of confidence by the investing public in the stability of the financial sector following the shake up that occurred during the hyper-inflationary years. Also, the compliance date for the new capital requirements was March 31 and the investing public is anxious to know which banks failed to comply, if any.
It is important that the authorities make an announcement on the status of the banking sector to allay any fears investors may have. There is a significant amount of money held in the form of cash in people’s homes.
The other reason is that businesses in Zimbabwe had resorted to dealing in cash, and some are still reluctant to use the national payments system and point of sale facilities that have been made available by banks. I am happy to say that the payments system has been operating smoothly for the past year and it is a real-time way of transferring funds from one person to another. The country is currently witnessing an unprecedented increase in armed robberies and muggings and it would benefit everyone if people used plastic money rather than carry cash. The cash that is circulating in the country is imported at a cost. This cost can be avoided if we utilise payment methods other than cash. Also, the amount of coinage available is low, again due to the high importation cost for coins. This has led to change problems, which can be avoided if people use debit cards for their purchase transactions.
Nyakazeya: What is your take on accusations that the banking sector has not done enough to mobilise lines of credit?
Mushayavanhu: The banking sector is always looking for lines of credit to boost lending, and has been fairly successful, especially from regional banks. However, providers of credit lines also take into account country risk issues, and these are beyond the control of the banking sector. In our view, the politicians should also play their part in mitigating the Zimbabwe country risk.
Nyakazeya: What is your position on the Indigenisation and Economic Empowerment Regulations on the financial sector?
Mushayavanhu: Our view is that the financial sector is the most indigenised sector in our economy. Prior to the early 1990s, this country only had six or so multinational banks and only one local bank. Currently we have over 20 commercial and merchant banks in Zimbabwe, and only four regional and/or multinational banks. To me, we have achieved our indigenisation objective in this sector. The economy needs a blend of local, regional and multinational banks to facilitate mobilisation of foreign credit lines. I believe that the country can learn a few lessons on possible ways to indigenise the economy by taking time to understand developments in the financial sector over the past decade. Indigenisation in the financial sector was achieved through various means, such as affirmative action in issuing banking licences, mergers of locally owned and foreign owned entities (First Merchant Bank and Heritage Investment Bank); outright purchase from foreign owners (Beverley Building Society, CBZ). All these transactions were done freely and willingly by the parties involved.
Nyakazeya: Some bankers say government should not force financial services institutions to “cede” ownership to local Zimbabweans but should offer preferential treatment to indigenous banks in its quest to economically empower locals. What is your comment?
Mushayavanhu: I agree that the solution is not to cede, but to create space for those who want to establish their own banking institutions, and meet the requirements for establishing a bank.
Nyakazeya: Financial institutions have been accused by Finance minister Tendai Biti and the central bank of charging punitive interest rates on borrowers, while rewarding low interest rates on deposits. Can you explain why it is the case?
Mushayavanhu: BAZ is in regular discussions with the Central Bank and the ministry of Finance on deposit and lending rates and certain measures will be put in place to create an ideal money market. The bulk of deposits in this market are classified as demand deposits, meaning that they are in the bank today and out tomorrow. Banks pay interest on fixtures and term deposits, but these do not constitute the bulk of bank deposits because the issue of confidence has not been fully addressed.
Nyakazeya: Is Zimbabwe over-banked?
Mushayavanhu: To me, the more the merrier! More banks mean that clients have a choice and will go to the bank that best meets their banking requirements. The economy is coming out of a very difficult period and, naturally, for now banks are operating at below installed capacity. However, this economy is set to grow and can certainly accommodate the banks that are there once it is operating at full throttle.
Nyakazeya: Comparing with what the region is offering, are our local banks charges not too high?
Mushayavanhu: As BAZ, we have done a study of bank charges in the region and overseas and I can confirm to you that our charges are very comparable to the charges prevailing in the region.