Zimbabwe, like every other country, needs a strong and safe banking sector that can mobilise savings and can help productive businesses grow faster. We have more than enough economic troubles without having to worry about whether a bunch of small, weirdly-managed and weak banks are going to fail.
We are not alone. Around the world monetary authorities and banking regulators have found out that many banks are not as strong as they should be, that greed among shareholders, partners and top managers has seriously weakened banks, and that vast injections of capital are needed to restore the sector.
While taxpayers in some countries were called in to shore up banks, to stop a serious recession turning into a major depression, there is a fast growing belief that those who want to own banks need to put money in, rather than take it out. Hardly a day passes without a banking authority somewhere demanding that shareholders pump in more equity, or else quit banking.
Now the Governor of the Reserve Bank of Zimbabwe, Dr Gideon Gono, has joined the chorus. He wants big banks protected by a thick slice of shareholders equity; to be precise he wants banks to have minimum capital, that is the permanent money put in by their owners, of US$100 million and he wants them to hit that level in just under two years.
This is just the minimum. The Basle III requirements, which Zimbabwe has adopted, require banks to have a higher percentage of their funds as equity than has been the case. A US$100 million bank can only lend out about US$600 million; if it wants to be bigger then it needs even more capital from its owners. Dr Gono is not setting maximums, only stating that he no longer wants small weak banks.
There are many advantages in having bigger banks. In the Zimbabwean context a big bank cannot be controlled by one or two shareholders. No one is that rich, yet. So the danger of insider loans retreats sharply. In fact, to reach the sort of levels Dr Gono has set, local banks are going to have to seek institutional investors, mainly the pension funds, and that too will be an advantage. These investors are not interested in borrowing anything, let alone seeking special advantages in that borrowing. They want good sound businesses to borrow, pay decent interest on time, and then convert those profits into dividends which the funds can use to pay pensions.
Until around 15 years ago, Zimbabwe's banking sector was boring and safe, dominated by a handful of commercial banks, two locally owned, three building societies and another handful of merchant banks. They largely competed on location of branches and the colour schemes of staff uniforms.
Then the doors were opened. The shake-up was needed, but the ride has been a little too rough.
We now know which new banks made the grade, which new banks have totally failed, and which are potentially vulnerable.
Now we hope to see mergers and buy-outs. The plethora of little banks needs to start marrying, and some marriages probably need to be polygamous. Even some of the successful newcomers could look at merging; we can see two that would fit together well and create a large strong bank that could compete with the old big banks as an equal.
The problem in the past has been the egos of controlling shareholders and top managers, even in the honest banks, with the desire to use "their" bank to supply cheap loans to bad businesses these shareholders also own being an additional complication. But most of the minority of "good" banks still have ego problems.
Well, now choices are limited. We find it hard to imagine that any group of Zimbabwean shareholders can find an extra US$87,5 million in two years. Even if two or three banks amalgamate they will find it tough, but a big, well-managed bank will find it a lot easier to attract investors who want a safe haven for their longer-term funds with a reasonable guarantee of dividends. They are not interested in some little bank that may, or may not, be around next month.
Every time another little bank goes to the wall, Dr Gono has carefully stated that this does not mean that Zimbabwe's banking sector is weak or in danger. In one sense he is correct. The big banks have the overwhelming bulk of deposits and even small savers are heard saying that "we are not going to put our cash in a little bank".
As some of the big banks are majority Zimbabwean owned, or very close to to having a majority of local ownership, and all banks are now managed by Zimbabweans, it is obvious that savers are worried about size, and competence of management, not whether ownership is local or foreign.
This is why we agree with Dr Gono. Our own banks need to be big, and whether this means mergers or whether it means spreading ownership in some other way, neither us nor Dr Gono really care. We just want an end to headlines that say: "Another bank collapses."