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The curse of Zimbabwe’s indigenous banks

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HARARE — So Trust Bank is no more! Bill’s project has derailed. The going might be tough, but surely something must be terribly wrong. Why is it that only indigenous banks are failing? Why are foreign-owned banks escaping this carnage?

Consensus among the rank and file is that the greedy bankers are abusing their deposits. One headline from a local daily newspaper captured it with “Depositors suffer as bankers live large”.

There is some degree of truth in this. Nigel Chanakira’s undoing was a loan to a friend, one Zach Wazara’s Valley Technology, which was proven to have been approved irregularly. Trust is believed to have loaned a huge chunk of their cash to RioZim before it was rescued from certain collapse by GEM. The loan was allegedly imprudent given the size of the bank’s book and was advanced to a company whose managing director also sat on the Trust Board.

Stories of similar transactions at Interfin and Renaissance Merchant Bank have been told and it’s not a wonder bankers have been made public enemies in this debacle. Others have proffered a more analytical synopsis laying the blame squarely at the Reserve Bank of Zimbabwe (RBZ)’s door. Some are sold to the idea that we do not have tools that are robust enough to provide the necessary oversight at the RBZ.

The central bank is depicted as a lame duck regulator with neither power nor teeth to stop the rot which even outsiders can see develop and implode from a distance.

Others assert that the tools are available, but the central bank is simply not doing its job. In a market that has a competent regulator, a failure of four banks in a few years does not bode well for its reputation. It is the stated mandate of the central bank to, among other things, ensure stability of the financial services industry.

Where tools are inadequate, a proactive central bank will ensure such is acquired quickly, pursuant to the effective conduct of its duty.

While there is some substance in the above view, the challenges of the Zimbabwean banking industry cannot be fully understood without an appreciation of the environment in which bankers are operating in. I hold the view that the setting is designed to make indigenisation banks fail.

I believe our policies as a nation have significantly militated again local banks such that when I see the giants that have become of NMB Bank and FBC Bank, it is nothing short of a miracle that I behold.

The good work that John Mushayavanhu and James Mushore have done with these banks has to be acknowledged. One day books shall be written on how best to defend a bank from hyperinflation and their names shall grace the pages.

Why am I standing in the bankers’ corner? Firstly, running a banking system without a lender of last resort is simply setting the weaker ones up for failure. I can do a thesis on why the presence of a lender of “last resort” in the form of a parent bank has been positive for international banks. Barclays Zimbabwe has gone on for years now barely breaking even yet investors still flock in, in some instances paying it for keeping its money.

Secondly, having noticed that low levels of capitalisation were a huge source of possible instability, the RBZ upped the minimum capital requirements for all banks in Zimbabwe. The timetables were too tight and set up almost all the indigenous banks to fail. Capital being what it is, flew to the few banks that had a good chance of meeting the capital requirements and this was far away from indigenous banks. I agree with the central bank on capitalisation.

Zimbabwe’s average loan-to-deposit ratio then stood close to 100%, yet average cost-to-income ratio was around 90%. Regional averages in comparable markets like Kenya and Zambia stand at 75% for the loan-to-deposit ratio and 60% for the cost to income ratio. It was clear that Zimbabwe’s model then was unsustainable, and action needed to be taken.

However, the action that was taken weakened the position of local banks and strengthened the resolve of the banking public to stick with international banks.

Thirdly, the indeginisation and empowerment laws also worked against local banks. It was clear at the time of announcing the new capital requirements that there was simply not enough capital locally to go around propping up the banks’ capital levels.

International capital had to step in and fill the void, but it was always going to be difficult if the transactions were to be done within the confines of our laws. A case in mind is the AfrAsia-Kingdom Bank relationship, which was well received initially, but soon became a case study of how not to invest in Zimbabwe.

Fourthly, banks themselves failed to read the signs of times. Maybe they did, but they could have been hamstrung by inability to fund efficient enhancing programmes like retrenchments. Cost-to-income ratios of plus 90% in most cases point to overstaffing, or, put differently, can show that the structure was too big for the lending activities that were going on.

The hyperinflationary environment called for more employees owing to the sheer volumes of notes and paperwork that was changing hands. But Zimbabwean labour laws being what they are, banks could not easily get rid of excess staff after dollarisation.

A restructuring of the whole industry was thus necessary and authorities could have moved quickly to help banks execute it without impairing their going concern status. This could have not only saved some banks that failed, but also the aggregate number of lost jobs would have been lower than what is unfolding now.

Lastly, I would like to apportion some blame on the bankers themselves. The environment may be tough, but nothing that a little innovation might have failed to solve. T

he banking of yesteryear is gone. What Tetrad, Allied Bank and Metropolitan Bank are doing makes it all the more difficult for anyone to take bankers’ side. Whatever it is they miss, the curse of indigenous banks is surely bound to strike again.

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