The huge piles of Greek bonds sitting on bank balance sheets have no known values, and marking them to market is the greatest nightmare. Banking today has indeed defied a number of factors that had come to be taken as truths, such as the popular understanding in finance that “losses lie where they fall”!
In Greece, economic losses induced by politicians’ behaviour are now lying on bank balance sheets, and worse still, years of economic excesses have all converged to lie on banks, hitting their income statements and capital positions in a big way.
As vultures circle over Greece, the Greek bankers know that their balance sheets are the primary targets for the huge debt write-offs, and like sacrificial lambs, they are being led to the altar for the atonement of past excesses.
The Greeks resent the austerity measures that are being imposed on the country in order to satisfy conditions for Greece to remain in the eurozone and thus get additional bailout packages.
On the other hand, the Germans resent the fact that they have to use their savings to bail out “reckless” spenders such as Greece, Spain and Italy, among other “reckless” European nations within the euro that may eventually need bailouts to come out of the sovereign debt crises.
One thing that globalisation has done is to facilitate easy transfers of the factors of production and technology, a situation that has, over the last 15 years, dissolved the competitive advantage of the Western countries in the production of goods.
On the other hand, Asian countries have grabbed the opportunities of technology transfers, blended them with cheap labour and unbridled sense of nationalism to ride the competitive edge and become big global players.
That has condemned countries such as Greece to be dependent on nothing more than the service industry as the pillar of GDP, a model that is not sustainable and that is beginning to collapse the world over. And the Greek banks now have to carry the cross!
Zimbabwean bankers are in the same boat as the Greeks, but their worries are different. But they all are carrying their national cross to Jerusalem.
The upheavals in the Zimbabwean economy that characterised the last decade are now beginning to show their biggest cracks ever, and if not managed well, Zimbabwe could easily slide into a trading economy, the curse of Greece.
The competitive advantage of having abundant mineral resources and cheap labour will come to naught. After dollarisation in 2009 and the ensuing stability, most companies have started experiencing the real challenges relating to managing operational costs.
Bankruptcies are now accelerating at a frightening pace, something that never occurred during the decade of hyper-inflation.
Since 2009, cumulative corporate losses have accelerated to US$710 million, and considering Zimbabwe’s GDP of around US$7 billion and stock market with US$3,9 billion, this figure is frightening.
The recent results coming out of CFI and Chemco, among other listed companies, show that indeed most corporates are still in the woods.
Equally disturbing are the levels of debt sitting on most balance sheets that remain toxic, a sure sign that the banks will be on the winding road to recover what they are owed much longer than desirable.
The debt restructuring challenges and subsequent circus at Rio Zim, once a formidable blue chip company, confirms that the road ahead remains tricky and treacherous for the banking sector.
On the background of bad and slow performing debts and poor capitalisation of the central bank, the market liquidity has taken a huge shock, and, as in Greece, the bankers in Zimbabwe are now having sleepless nights.
The huge publicity the situation is attracting is not assisting; worse still for indigenous banks that all get labelled as unsafe when in fact some of them are sound as their liquidity ratios are showing.
At the time of dollarisation in 2009, the economy desperately needed liquidity to kick-start the process and indigenous banks, for what they are, shouldered the burden.
Their loan-to-deposit ratios ran well ahead of their foreign counterparts such as Stanchart, Barclays and Stanbic.
At one point the RBZ implored foreign banks to be sensitive and lend “generously” to assist the economy to come out of the recession at a time some of their loan-to-deposit ratios were ridiculously low at about 22%.
The gesture of indigenous banks then was commendable, and they got the applause for embracing the broad vision of taking the economy forward.
Indeed, the figures of GDP growth that have averaged about 9% over the last two years and notable increases in productive capacity that have seen more local products occupying shelf space in supermarkets mean indigenous banks must be commended for playing their part.
Definitely the economy would not have come to where it is today if indigenous banks had taken the very conservative approach of their foreign counterparts.
But banking has always been a zero-sum game for bankers themselves. All bad decisions that come to haunt banks are always blamed on bankers, and never on the economy or borrowers.
When borrowers fail to pay back it’s the bankers that would have made bad decisions. The borrowers are exonerated. The blame is placed on greedy bankers that would have engaged on reckless lending to ramp up massive income.
Most corporates in Zimbabwe are sitting on huge piles of debt and when evaluating the fact that most of them are making huge operating losses, it becomes evident that the current liquidity crunch in the market has more to do with poorly performing debts than anything else.
Banks are now in a dilemma. A huge slowdown in lending will definitely see the economy miss the projected GDP growth of 9% by a wide margin. Equally, continuing to lend may create more liquidity challenges for the individual banks such that they may not live long to be congratulated by policymakers for playing their part in the revival of the economy.
Given the circumstances, banks will likely settle for the former and begin massive foreclosures that will, among other things, collapse the housing market and see rising unemployment as most companies will lose their equipment and buildings to banks.
A new wave of bankruptcy will grip the economy as banks call-up their loans from poorly performing companies and surely the end result will not benefit anyone. And politicians know this for certain. However with the coalition government, the blame will be swinging from one corner to the other as has always been the case on key policy aspects.
The RBZ has done well in calming the markets in the monetary policy statement. But more needs to be done to ensure stability and prevent the flight of deposits from mainly indigenous banks that, unfortunately, all get painted with the same brush.
A quick survey has shown that indeed a number of indigenous banks such as NMB, FBC, Zimbank and Metropolitan, among others, are still able to meet their customer obligations, but more needs to be done collectively for the banking industry to ensure that banks that have been taking heed of the policy maker’s calls to assist in building the economy are not unnecessarily punished by negative publicity and weak assistance from the lender of last resort.
Ozias Bvute is the managing director of Zimbabwe Cricket. He writes in his personal capacity.