17 June 2012

Zimbabwe: Sanity Lacking in Banking Sector

ONCE again, indigenous banks have flattered to deceive.

The closure of Genesis Bank and placement of Interfin Bank under curatorship has brought back questions about the credibility of local financial institutions and the effectiveness of the Reserve Bank of Zimbabwe (RBZ) in regulating the banking sector.

Genesis surrendered its licence after failing to meet the minimum capital threshold of US$10 million for merchant banks. It had a negative capital of US$3,2 million and despite being given extended deadlines by RBZ, no knight came in shining armour.

It became the second bank after NDH to throw in the towel since the use of multi-currencies in 2009.

Interfin was placed under curatorship after RBZ found the institution to be unsafe and unsound.

The latest casualties join over a dozen financial institutions that were either closed or put under curatorship in the past eight years.

The casualties, which were all locally-owned, include ReNaissance Merchant Bank, CFX Merchant Bank, First National Building Society, Royal Bank, Barbican Bank, Rapid Discount House, National Discount House, Century Discount House, Intermarket Discount House, Trust Bank, Intermarket Banking Corporation, Intermarket Building Society . . . the list is endless.

Before then, the Roger Boka's United Merchant and David Chapfika's Universal Merchant Bank had closed in 1997 and 2001 respectively.

The ailments have been the same -- concentrated shareholding, weak corporate governance, owner-managed or controlled and insider loans, which all turned out to be non-performing.

There was also the siphoning of depositors' funds through related party loans to the main shareholders and their associates "akin to a declaration of dividends by shareholders from depositors' funds".

All these shenanigans have been associated with local banks and the question uppermost on most depositors' minds is; do these failures mean that locals do not have the capacity to run banks?

"Banking is about systems and controls. Good corporate governance is what makes banks adhere to policies and procedures, as well as regulatory requirements. You won't find these problems in foreign-controlled banks because compliance to good corporate governance and risk management is paramount," an executive said.

In all the bank failures, shareholders have been exerting pressure on management to dish out loans to related parties. This had raised questions on what would be a workable model for banks.

Finance minister Tendai Biti proposed in April an amendment to the Banking Act that would bar shareholders from being in both executive management and the boards of banks.

"That has to stop. If you are a shareholder, go and play golf and let other people run the bank for you, both at management and board level," Biti said.

There is also another school of thought that believes RBZ has been found wanting as the abuse of depositors funds continue.

"It's not enough to say that you are putting a bank under curatorship and that the affected banks had concentrated shareholding, as if the regulator was not aware of the owners," a banker said on Friday.

"It's a matter of closing the stables when the horses have already bolted. RBZ should continue policing banks to weed out rotten institutions."

Bankers said last week, local institutions have to embrace foreign partners if they are to survive in the environment of tight liquidity.

"Gone are the days when someone would say I own a bank. That era is long done. You either look for a strong institutional investor or a foreign partner, otherwise your days are numbered."

Since the use of multi-currencies, a number of local banks have embraced foreign partners, thereby attaining much needed strengthening of risk management systems, good governance and strong capitalisation.

Premier Bank attracted African Development Corporation before concluding a major deal with pan African banking group, Ecobank Transnational Incorporated, which led to the bank being rebranded to Ecobank Zimbabwe and locals retaining 30% shareholding, but giving management control to the new shareholder.

NMB invited African Century while Mauritian banking group AfrAsia bought 35% into Kingdom Financial Holdings Limited.

It has been reported that Royal Bank is partnering with a Kenyan bank while Trust Bank is in talks with a foreign investor.

Calls for partnerships on the rise

Despite the banking sector having more indigenous players than international banks, their performance has not been pleasing, reinforcing calls for consolidation.

Statistics from RBZ show that as at May 24, the 19 local bank's deposit base stood at US$2,4 billion compared to US$1,5 billion for the seven international banks.

Of the locals' total deposits, the top three -- CBZ, CABS and FBC's contribution was more than half, meaning the remaining 16 banks shared the balance.

Based on that contribution, observers are of the view that while there is a push for locals to have equity in foreign-owned banks, the above statistics should provide useful guidelines.

"Locals should have shareholding in foreign-owned banks, but this does not mean that they have been given licence to dole out loans to the whole clan," an executive said.

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