HomeBusiness DigestGono’s move could destabilise the financial sector

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They have criticised the move as being an overdose on an ailing sector, given that numerous recapitalisation initiatives across all sectors of the economy have failed dismally.

Undercapitalised banks, just like listed companies on the Zimbabwe Stock Exchange, have post dollarisation failed to raise adequate capital due to the multi-faceted problems.

These problems emanate from sovereign and political risk, which are impacting on the operating economic environment.

Some analysts believe there is still need to give undercapitalised banks more time to finalise their deals, given that some of the banks were once put under curatorship, a development which has dampened investor confidence.

“The move by Gono now seems to be more of a cleanout operation but there is need to consider the fact that some of these institutions are from a curatorship background and will need more time to convince investors to provide capital,” an economic analyst said.

However, Gono believes that he has given these institutions enough time to turn their fortunes around and some are failing to conclude their transactions owing to the need to cling on to majority shareholding.

“Despite several extensions of recapitalisation deadlines, a few banking institutions have failed to conclude their recapitalisation initiatives. Bankers should be able to reduce their shareholding to allow for capitalisation,” said Gono.

If bankers are to reduce their shareholding, will the recapitalisation be consistent with the indeginisation laws whereby locals are expected to hold 51% shareholding, or there should be exceptions?

“Without a doubt, founding members of these banks wish to maintain majority shareholding, but given the huge capital requirements of a minimum of US$12,5 million for commercial banks, they would probably shed a significant shareholding,” an analyst said.

Last year Gono advocated for banks to get a reprieve on the provisions of the indigenisation laws and this paved the way for bankers to enter into agreements with investors without fear of breaching the indigenisation regulations.

Of those institutions that may fail to comply within the stipulated period, questions hover on what is going to happen to depositors’ funds if the banks lose their operating licences.

Some feel that depositors could be prejudiced if they had long term investments.

“Accordingly, the undercapitalised institutions should do the honourable thing and voluntarily surrender their licences to the supervisory authorities, failing which they will be dealt with in line with the Reserve Bank’s Troubled and Insolvent Bank Resolution Policy,” Gono said.

The RBZ will need to come up with a plan to ensure a smooth transition if any banks go under so as to minimise the impact on the whole financial sector, given synergies which exist among banks.

Some analysts feel the tone of the governor may have a negative impact on ongoing discussions, adding financial institutions were given short notice to deal with capitalisation initiatives.

“For the avoidance of doubt, all dispensations for compliance with minimum capital requirements granted to non-compliant institutions are hereby revoked with immediate effect, and superseded by the timeframes detailed herein,” said Gono.

An economic analyst said: “In the announcement, the tone of the governor could trigger a panic which may lead to a run on these undercapitalised institutions, and such a development may impact negatively on any ongoing negotiations.”

Banks facing the prospect of losing their licences include the disbanded ZABG, Royal Bank and Genesis Merchant Bank.

ZABG is understood to be engaging investors and is optimistic it will meet the February 14 deadline. Royal Bank announced that although the central bank had initially set the deadline at 31 September 2012, the bank had set its own deadline to December last year, insisting it is well on course to meeting the new deadlines.

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