Going tough for banks

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ZIMBABWE’S central bank has since the introduction of the multiple currency regime in 2009 put a number of banks under curatorship amid hopes the financial institutions could be saved, but it has resulted in the majority slipping into liquidation.

Taurai Mangudhla

Other banks have surrendered their licences after finding the going too tough.

In November last year, Tetrad Investment Bank was suspended by the Reserve Bank of Zimbabwe (RBZ) from undertaking banking activities after failing to secure investors to turn its fortunes from a negative US$19,7 million capital position as at September 2014.
Interfin Bank Ltd was later put under liquidation after a four year curatorship period.

In the first week of this month, Transport minister Obert Mpofu’s Allied Bank also surrendered its operating licence.

Economists have already painted a gloomy picture for struggling banks, particularly those already under close monitoring given that this year is likely to be a more difficult year for business compared to 2014.

“Honestly 2015 is going to be a hard year, I don’t see banks that are under monitoring picking business,” Economist Takunda Mugaga said. “However all five banks under close watch can do themselves a favour by either surrendering their licenses or moving to lower tier status by becoming micro-banks.”

Prosper Chitambara, an economist, said the success of Zimbabwe’s banking system hinged on economic performance. Unfortunately, the economy is in turmoil with indications more companies are shutting down and workers being laid off.

According to statistics, more than 6 000 employees were retrenched between January and November last year while Finance minister Patrick Chinamasa revealed in his 2015 National Budget late last year that 4 610 companies closed shop, resulting in the loss of more than 55 400 jobs between 2011 and 2014.

“Generally nothing has changed for the better. The banking system is tied to the fortunes of the economy and if the economy doesn’t perform, it will trickle down to banking,” Chitambara told businessdigest in a telephone interview.“If companies keep closing then the health of the banking sector is affected.”

Apart from the macroeconomic challenges, analysts argue the RBZ needs to be pro-active and not reactive to save the banking system from chaos.

However, the central bank’s options are limited in the current environment, Mugaga said, adding RBZ Govenor John Mangudya’s hands are tied as he is running against time to expedite the RBZ Debt Assumption Bill.

“He can’t be seen locking banks and as an economist, Mangudya believes in strategies which give such struggling banks an opportunity,” he said.

“I believe he is very aware of the effects of rushed decisions to close banks as (immediate past RBZ Governor Gideon) Gono’s era had contested cases with those of Intermarket, Royal Bank and Time Bank being prime examples.”

Chitambara said the RBZ was limited to a supervisory and monitoring role because the country has adopted a basket of foreign currencies.
“They don’t have many options like quantitative easing because we don’t have our own currency,” said Chitambara.

He said the banking system was generally affected by non-performing loans (NPLs)which have a negative effect on the balance sheets of banks. These NPLs, which according to the RBZ stood at 20%, 14% of issued loans as at September 13 2014, are mostly a result of insider loans.

The economist added corporate governance management needs to be above board and the central bank should strengthen risk management systems to deal with high insider loans.

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