ZIMBABWE'S banking sector faces tough times in 2014 due to a generally tough economic environment with at least three banks expected to lose their operating licences, top economists say.
This comes as a confidential November 2013 Reserve Bank of Zimbabwe (RBZ) document gleaned by businessdigest indicated seven out of the 21 licensed banks excluding POSB were facing challenges and are the subjects of close central bank monitoring under the Troubled and Insolvent Bank Policy.
According to the document, 15 operating banks made profit out of 21 operating banks as at September 30 2013, while the average ratio of non-performing loans to total loans increased to 15,64% compared to 14,51% the prior year.
The ratio was largely a result of the seven troubled banks as it stands at 9,1 % excluding the struggling institutions.
Analysts say the banking sector is simply a mirror of the economy hence the need to ensure economic recovery first.
They argue only banks that do not lend much like the internationally-owned banks and those that have been adequately capitalised will survive the tough economic conditions this year. The banking sector has been hamstrung by tight liquidity after general elections last year saw President Robert Mugabe's Zanu PF winning a two-thirds majority in parliament, Econometer Global Capital head of research Takunda Mugaga said.
"Corporate governance is a perennial problem in Zimbabwe's banking sector and room for growth is almost non-existent with an average of about three banks expected to lose their operating licences this year alone," said Mugaga in an interview.
"Banks are operating on autopilot where legacies of a kung-fu banking policy are coming home to roost."
Mugaga said the smaller local banks will struggle to raise the required US$100 million minimum capital, a situation that will threaten their continued existence.
Before the US$100 million minimum capital requirement, some local banks were struggling to raise the then stipulated US$25 million minimum capital.
"For 2014, the banking sector is doomed with prospects of foreign banks much brighter; the maintenance of the US$100 million minimum capital requirement in the last budget dents any hope of a recovery in the sector."
Economist John Robertson said the situation looks dismal for banks largely because they have very little capital.
He said the banks are also unable to attract more money because of policies such as the Indigenisation Act.
"Many of the smaller indigenous banks will struggle just to make it to the end of this year mainly due to lack of capital while the international banks will easily survive," Robertson said. "Some banks will comply with the minimum capital requirements but it won't be good enough because we need to revive industry using lines of credit from the banks."
Bulawayo-based economist Eric Bloch however said the sector would recover with signs expected to be visible by April largely as a result of the central bank's attempt to have a firmer grip on the sector.
"We know there are five or so troubled banks but they are now being monitored by the RBZ and it will lead to recovery of the financial services sector," Bloch said.
"I expect recovery in the banking sector within the next three to four months and this will be one of the factors that will also contribute to economic recovery."
According to the RBZ report, Interfin Bank, Capital Bank, Trust Bank Corporation Ltd, Allied Bank, Kingdom Bank Ltd, Tetrad Investment Bank and Metbank Zimbabwe Ltd were on the list of troubled banks at the time.
However, Kingdom Bank (now Afrasia Zimbabwe Ltd) in December raised US$20 million through a rights issue.
The report said Allied Bank's core capital declined from US$12,6 million as at August 31 2013 to US$11,8 million as at September 30 2013 due to persistent losses and had an outstanding payment of US$7,4 million as at September 30 2013.
Trust Bank's core capital stood at US$2,6 million as at September 30 2013 down from US$$2,9 million a month earlier and according to the report, it continues to abuse depositors funds amounting to US$5,3 million as at October 31 2013, up from US$4,97 million as at September 30 2013.
Tetrad Investment Bank's capital position deteriorated from US$11 million as at July 31 2013 to US$8,4 million as at September 30 2013 also due to losses. Tetrad's subsidiary TFS Asset Management was capitalised to the tune of US$180 000 against minimum capital requirements of US$500 000.
Metbank's core capital went up marginally to US$25,4 million as at September 30 2013 from US$25,2 as at August 31 2013. However, it had negative liquidity and cumulative gaps of US$28,63 million and US$50,56 million respectively in the seven-day and 30-day time periods as at October 24 2013. This was mainly due to non-performing loans which amounted to US$29, 43 million as at September 30 2013.
Metbank resolved to dispose of its Lot J Borrowdale property to boost its core capital.