FOR many decades Zimbabwe’s key national sports were football, rugby and cricket, but for the past 10 years the country’s national sport has progressively become deep-seated criticism of the country’s banking sector in general, and of the Reserve Bank of Zimbabwe (RBZ) in particular. So passionate has this sport become that even when the key players (banks, building societies, micro-finance and other financial institutions, the RBZ and Governor Gideon Gono) do what the spectators desire them to, they are berated and alleged to be at fault.
Indisputably, much of the financial sector was grossly under-capitalised in relation to stability and security levels that could justly be required of them.
Frequently, many of the institutions were mismanaged; certain loans made most irresponsibly and often to undeserving relations. Oversight of their operations and conduct by the authorities had to be markedly intensified.
So great were banking sector ills that in 2004, shortly after he became governor, Gono urgently focused on addressing the ills. The RBZ imposed recuperative curatorship upon nine financial institutions as Barbican Bank, CFX Merchant Bank, Intermarket Banking Corporation, Intermarket Building Society, Intermarket Discount House, Royal Bank, Time Bank, and Trust Bank.
A further three — Barbican Asset Management, Century Discount House and Rapid Discount House — were placed under liquidation. A year later, First National Building Society was also placed under final liquidation.
At the same time, RBZ intensified monitoring financial institutions through the introduction of detailed measures to deal with financially-troubled institutions; the measures were incorporated in a policy known as the Troubled Bank Resolution Framework. Despite these and other RBZ measures, the circumstances of many of the banks and other financial institutions progressively became very strained and increasingly insecure, especially beteween 2006 and 2008. During that period, Zimbabwe’s hyperinflation soared to record levels. The consequences were manifold, having negative repercussions on the financial sector.
On the one hand, the public became increasingly reluctant to place their funds into the custody of financial institutions as the money would lose value. This severely impacted upon operational resources available to the financial institutions.
The massive hyperinflation increased the operational resources needed by commercial enterprises which — with their own funding progressively becoming more inadequate to bankroll operations — constantly sought greater facilities from bankers and other financiers. Consequently, more and more banks, building societies, discount houses and micro-finance lenders, became increasingly under-capitalised, rendering them vulnerable to collapse.
Moreover, in the constrained economy over those years, the financial sector irrefutably comprised too many entities to assure stability and security of operations, a scenario that still prevails. As at July 31, the date of the RBZ’s half-yearly monetary policy statement, Zimbabwe had 213 entities in the financial sector, there being 25 banking institutions, 16 asset management companies, and 172 microfinance institutions.
The over-population of Zimbabwe’s financial sector is clearly apparent when comparison is drawn with other countries. South Africa has 32 banks to service a population of over 50 million; its Gross Domestic Product exceeds US$408 billion. Zimbabwe currently has 25 banks to service approximately 13,5 million people, and has a GDP of US$10,07 billion. Malawi, with a similar-sized population and a GDP of US$12,98 billion, has 12 banks, whilst Namibia, with a GDP of US$14,6 billion functions with only five banks. Clearly, Zimbabwe is overbanked, intensifying the vulnerability of banking sector institutions.
In its continuing vigilance to ensure stability and security of the financial sector, the RBZ has on several occasions prescribed increased capitalisation levels, and did so yet again in the recent monetary policy statement. Gono has stipulated that, on a phased basis between December 31 2012 and June 30 2014, commercial banks must increase their capital from a minimum of US$12,5 million to US$100 million, which level must also be attained by merchant banks, their presently prescribed minimum being US$10 million.
Building Societies’ minimum capital must be increased from US$10 million to US$80 million, whilst Finance and Discount Houses must increase from US$7,5 million to US$60 million, and microfinance banks must raise capital from US$1 million to US$5 million.
These prescribed levels have understandably provoked a furore in the financial sector, with most institutions fearing a complete inability to comply, thereby potentially being confronted with forced closure.
Their concerns are well justified, for the combination of years of investor and public disillusionment with the sector, compounded by the fact that the economy continues to struggle (notwithstanding some marginal growth since 2009), renders the prospects of sourcing the prescribed capital from the investment market fairly remote. The ability to raise the additional capital is also restricted by reluctance of foreign shareholders in some of the banks to effect any further capitalisation of their Zimbabwean enterprises because of the ongoing determination of the Indigenisation ministry to reduce non-indigenous shareholding to minority status not exceeding 49%. A further negative factor in attaining the capitalisation levels is that public confidence in the banking sector continues to be extremely low, thus minimising deposits with the sector and therefore the extent of operations.
The RBZ was not oblivious to the capitalisation constraints, but has reiterated that one potential solution would be the merger and consolidation of institutions to achieve enhanced capitalisation and concurrently reduce overbanking. It has also continued to emphasise the foolhardiness of indigenisation requirements while pressing for realism and constructive pursuit of national interests. However, despite the sound stance, the RBZ remains the recipient of endless criticism especially directed at Gono. This disregards the fact that capitalisation requirements were approved by the board of directors of RBZ, and not unilaterally imposed by Gono.
Nevertheless, the difficulty in accessing sufficient capital injection within the prescribed period, and the limited extent to which viable mergers can be achieved, suggests compromise by the RBZ on the time periods and extent of prescribed capital levels may be necessary.