MONETARY authorities in Zimbabwe — already facing public resistance to bond coins introduced last December, a liquidity crunch and rumours of the return of the Zimbabwean dollar — are under pressure to restore confidence to its fragile banking sector, where a second bank has closed this year.
By Ray Ndlovu
The instability of the banking sector further entrenches the fear that ordinary Zimbabweans have of keeping large sums of money in banks. Overnight, depositors in the past lost their savings because of bank collapses, hyper-inflation, or the adoption, as in February 2009, of the US dollar as the currency of choice against the Zimbabwe dollar.
The closure last month of AfrAsia Bank, formerly known as Kingdom Bank — a 1990s pioneer in indigenously-owned banks — adds another instalment in the long history of bank closures.
In January, Allied Bank, which was owned by Transport Minister Obert Mpofu, surrendered its licence to the Reserve Bank of Zimbabwe (RBZ).
According to the central bank, the country has 15 operational commercial banks, a figure which analysts said was high and must be “downsized further” to match economic activity.
Though deposits in banks have been growing in the past two years, industry executives admit it’s far from smooth sailing.
Official reports from the Bankers Association of Zimbabwe indicate that at the end of 2013, deposits were around US$3,93 billion and grew 12% to US$4,4bn in the same period last year. This is dwarfed by the estimated US$7,4bn in circulation in the informal sector that mobile money transfer agencies are also keen to tap into.
“Banking sector deposits have grown steadily throughout 2014, albeit at a slower pace than when the multi-currency system was first introduced,” said Willard Zireva, board chairman at MBCA, the Zimbabwe unit of SA’s Nedbank. “Deposits have remained largely short-term and transitory and concentrated in a few large banks.”
A report by Industrial Psychology Consultants released last year said Zimbabweans favour international banks to handle their funds. SA’s Standard Bank unit in Zimbabwe, Stanbic, and the British-owned Standard Chartered and Barclays banks were rated as the most favoured international banks by the report. “Only 24% of customers wanted to stay with their current banks.”
James Benoit, AfrAsia Bank CEO, said the difficulties its operations in Zimbabwe faced arose primarily from legacy issues within the bank and the difficult economic environment. “Zimbabwe has been going through an economic slowdown due to liquidity challenges and a fragile global financial environment,” Benoit said.
Nigel Chanakira, the founder of Kingdom Bank who left in 2013 when it changed hands to AfrAsia, said the bank’s collapse would inevitably result in a high casualty rate. “Such unfortunate events come with a lot of losses. Clients will lose money and workers will lose their jobs. The confidence depositors had in our banking system is destroyed by such occurrences.”
Economic commentators said the slump in the banking sector was not only caused by low economic activity, but was also driven by the scaring away of foreign investors by the 51% indigenisation law. The irony appears lost on President Robert Mugabe’s Zanu PF government as it pushes for the implementation of the law, when indigenously-owned banks are failing.
But monetary authorities appear poised to provide indigenous solutions to the crisis, with the central bank set to release US$5 million worth of bond coins at the end of this month.
John Robertson, an independent economic commentator based in Harare, said the bond coins were a piecemeal solution offered by the RBZ and were only aimed at convenience rather than addressing the challenges of money supply and stagnation.
Still, John Mangudya, the RBZ chief, said the bond coins would help correct the high price regime. However, hope for recovery in the banking sector appears to lie in the mushrooming of mobile banking services. — BD Live.