The situation is getting intense as Kasukuwere clashes head-on clash Finance minister Tendai Biti and Reserve Bank governor Gideon Gono who are urging caution on how to deal with the sensitive sector.
Tensions over the issue are likely to rise following the closure this week of Interfin Banking Corporation Limited and Genesis Investment Bank due to chronic liquidity problems. The fight could destabilise the country’s fragile banking sector, unleashing systemic risks that could result in more bank failures.
The Reserve Bank on Monday closed Interfin — which had a negative core capital of $93 million – and Genesis in a move which showed the local banking sector is sitting on the edge.
The latest crisis could further shake the $3 billion sector and undermine economic recovery efforts. The situation is being exacerbated by the ongoing controversial indigenisation policy which demands foreign-owned companies, including banks, must surrender 51% of their shareholding to locals.
Kasukewere has been pressuring Barclays, the country’s oldest British-owned bank, into complying with indigenisation laws. Although Barclays executives confirmed meeting with Kasukuwere, they declined to give details.
Kasukuwere’s demands fly in the face of Gono’s repeated insistence indigenisation should be a gradual process to avoid destabilising the banks and economic recovery.
While Kasukuwere has not been able to convincingly explain his policy, Gono has been clear expropriation by whatever name must be avoided as it would ruin the sector and undermine the economy. Besides, Gono and bankers argue the sector is already controlled by local entrepreneurs and there is no point to force a few foreign-owned banks to be localised.
Currently there are 26 banking institutions operating in the country, of which seven only are foreign-owned and internationally active banks. The rest are locally-owned.
Gono says while he believes in the principle of indigenisation, he did not support the current model and approach. He has in fact proposed his own “supply chain-based economic empowerment model” as an alternative to the current equity-based plan.
“The bank firmly believes that indigenisation is a process of transferring ownership of the resources of a country to its rightful owners, who are the indigenous people. Empowerment, on the other hand, is a multi-dimensional socio-economic process of opening up opportunities for livelihoods, growth and prosperity to the greater majority of the people in an economy regardless of whether the source of opportunity is non-indigenous or otherwise,” Gono said last week.
“In this regard, the Reserve Bank is not against the country’s indigenisation policy per-se, but is only advocating for economic empowerment in the banking sector, in a manner that preserves the prevailing stability in the sector. To this end, an alternative empowerment model in the banking sector based on the supply chain approach can be seriously considered.
“Banking institutions play an indispensable role of transferring resources from the surplus units to the deficit units in the economy,” Gono said public confidence in the banking is key to its survival.
“The success of any banking institution, however, depends on the confidence that depositors have on the particular bank. Without depositor confidence, a bank may fail to properly function and in extreme cases, may suffer a deposit flight.
“The interconnectedness of banks implies that any systemic crisis experienced in one institution can easily spread across the entire financial sector. This can potentially have a knock-on effect on the entire economy. It is against this backdrop that the Reserve Bank continues to re-affirm its stance that empowerment in the banking sector should be done in a manner that recognises the peculiarities and sensitivities in the financial sector, and the need to safeguard financial stability.”
However, Kasukuwere is determined to bulldoze his way through. Acording to banking analyst Dr Lance Mambodiani, as the law currently stands, there is no sectoral distinction regarding the indigenisation policy. “A blanket application of the indigenisation policy could be flawed,” said Mambondiani. “I believe there are some sectors such as banking that deserve special consideration if we are not to risk destabilisation of the entire economy.”
Although sectorial reports were done by government, showing bankers saying the sector was already indigenised, Kasukuwere and his allies like David Chapfika — who are failed bankers — are persisting.
The Bankers Association of Zimbabwe has been protesting the drive to indigenise international banks because of the vital systemic role and bridging Zimbabwe and global markets.
Analyst Eric Bloch estimates Zimbabwe’s financial sector lost out on at least US$6,3 billion in potential lines of credit due to such destabilisation. Mining consultant Chris Hokonya says the mining sector has lost US$4 billion.
According to Tamuka Charles Chirimambowa, author of The Rise and Fall of the Indigenous Business Development Centre in Zimbabwe (IBDC) (2012), when Barclays announced intention to sell 25% of its shares to the public, IBDC wanted government to buy the equity and transfer that to it to give locals a piece of the cake but now authorities just want to grab.
However, Mambodiani says foreign-owned banks might stick it out all the same.