Zimbabwe: Top Banker Upbeat Amid Turbulence

Zimbabwe's bond notes and U.S. dollar notes.

Zimbabwe's currency reforms that began in February have pushed up inflation to record levels.

The country, which adopted the United States dollar as legal tender a decade ago, at the beginning of the year launched a transitional currency and converted all its domestic foreign currency debt to local currency at a ratio of 1:1.

In June, the multi-currency regime was scrapped and the real time gross settlement (RTGS) as well as bond notes and coins became the sole currency.

The local currency has been losing value rapidly against the US dollar and inflation figures are galloping, but First Capital Bank MD Samuel Matsekete believes Zimbabwe is on the right path.

Matsekete (SM) told Alpha Media Holdings chairman Trevor Ncube (TN) on the platform In Conversation with Trevor that the government's interventions have been consistent and this was key for an economic turnaround.

TN: You have basically risen through the ranks at First Capital Bank, please take us through your journey.

SM: I have had the privilege of working in other industries.

I started off in the accounting profession, qualified with KPMG, worked in the manufacturing sector and worked from there into the financial services sector and joined the finance department as the finance controller. I was then promoted into the role of finance director and I worked in that post for almost 10 years.

Meanwhile, the role itself evolved. At one point it encompassed legal compliance and other functions in the bank, which was useful information for me and I cherish that.

I then got promoted into being the MD just at the peak of our transition effectively when we crossed over from Barclays and we became part of the First Capital Bank Group.

TN: Talk to us about the transition from what has been to the First Capital Bank, how the process was done and what are the lessons from that.

SM: This transition we have decided that it has had three phases. In 2015 Barclays PLC announced that they would divest out of the African business, all of the

Barclays entities in Africa and you can imagine that is when the transition happened when you are advised that you are for sale.

It meant that it wouldn't be business as usual per se whether it is in terms of investment that you do, capital investment and also new products that you would bring to the market, so you could actually see to a significant extent, part of the disadvantages of being in that long transition because we couldn't commit as much money into long-term investment.

This period was pre-crossover and in 2016 the transition itself progressed, 2017 October the transaction was concluded and at that point the shareholding changed.

We used to have 68% held by Barclays in London (and) that was reduced to 10%, which is where we are at the moment, and FMB Capital Holdings came in and became the major shareholder at 43%, but with the pre-emptive right to the residual shareholding that Barclays PLC currently holds.

TN: Who is FMB Capital Holdings?

SM: It is a holding company of banking businesses in Southern Africa. They are present in five markets as operating business units and in a sixth market in Mauritius where they provide support services as well as general management activities. Effectively, that is where the head office is now. The five countries are Botswana, Mozambique, Malawi, Zambia and now Zimbabwe.

TN: How involved are they in terms of the business you are running as First Capital Bank?

SM: As the majority shareholders, they do have the mandate to control, which means that they have a management oversight of all the units, but that is within the normal confines of how we run the business.

Barclays used to be listed, First Capital Bank is still listed and within that, we still need to make sure that the way we manage the business complies with all of that.

So yes, they do manage, but the whole group does benefit from the shared services from centres of excellence within the group including the head office itself.

TN: From your vantage point, what is the state of the Zimbabwean economy right now? What are the experiences that your clients are telling you right now about the current economic situation?

SM: If I was to summarise, the economy is in a transition because we are coming from a space where there were obvious things that needed to be dealt with and, in fact, the government programme itself to deal with that change is called the transitional stabilisation programme, but if I walk the journey say from the quarter fall of last year to now and this is where a lot of the action is now happening.

There have been clear consistencies in terms of the interventions that authorities have tried to apply to the economy as a remedy to the challenges that were there and walking us to a place where we can start to realise the benefits.

This obviously is challenging, which means that there is some pain to be taken.

Remember that one of the questions that investors used to ask prior to September last year in their decision matrix around how they invest in Zimbabwe was to say: What currency do I invest?

The investors usually said that they felt disadvantaged in the first days of the investment so what was very evident was that we needed to deal with the currency issue and in October (2018) the minister sent a signal to say that we now have to separate between the form of the currency we use locally and the form of the currency we would use as foreign currency and follow it up with the introduction of other taxes that came through the intermediated money transfer tax, which once again was a recognition to say that when we do that, we would now need to expect at some stage that we would now have an exchange rate come through. [And] have inflation measured in terms of the local currency.

So there was need to start to control what was coming out of the bubble of pseudo money and you will start seeing that intervention starting to also address an issue in the fiscal space to make sure that our revenue base is broadened.

TN: So you are comfortable with this destabilisation that is taking place?

SM: Yes, the point that I have always made was that this has been one of the interventions that has shown coherence at least in terms of the policies and what was aimed at.

The steps I have alluded to show you how consistent it was.

Another example is that which took place in February when the fuel price was increased, which was to say how the country was dealing with the external sector, that was another deficit and it still is where the significant part of it was that the demand for fuel and our inputs.

We needed to make sure that we were using the pricing of fuel as a rationing tool, but also as a way of saying how do we raise money, which is excise duty and so forth.

TN: So you as the banker might be comfortable, what about the clients, are they comfortable with the situation of the stabilisation programme and the way you are experiencing it?

SM: I think the comfort level is really about understanding the objectives that we are trying to work towards and also in terms of how coherent some of these policies have been.

We also have to recognise that there are discomforts on the part of clients; economic agents with banks included, which are to say are we going to sustain it and when is the gain going to start to show.

When you take pain, you want to understand how much gain and when you are going to start to see results.

That is the point where we see the discomfort, but now we know our currency and now we are trying to control inflation, money supply as well as to now start to support the foreign currency market to be free.

TN: In a nutshell, when do you expect to see these benefits to start rolling in?

SM: We naturally still have to go into the next agricultural season. If I take that we are an agro- based economy, we need to go through this next season and see that we have produced because at the bottom of all of this, we need to see production and production for the Zimbabwean economy cannot really be meaningful without talking about agriculture and making reference to that sector.

The minister said that we will start to talk about austerity after moving from austerity in the 12-month outlook.

TN: First Capital Bank has recorded a profit of $68,1 million and you are not paying a dividend. Explain to us the decision behind that?

SM: The results for First Capital Bank have got to be understood in a broader context. Like I have already alluded to, we have gone through a significant transition and within the transition we also needed to make significant investment into technology.

We needed to migrate, just to give an indication of the scale of the project itself.

We needed to upgrade about 60 systems from the way that we used to be supported within the Barclays Group to know how we are configured as the First Capital Group and locally.

We also needed to attend to issues of how we operate in terms of our target operating model, our structure and so forth to make sure that we are efficient.

That has shown in our results because whilst we were busy working on the internal change projects, which were very critical and quite demanding, we had not focused enough in terms of how we would now compete out there, generate and deploy new revenues.

The mix of the income statement will now also reflect because a significant part of what you see is revaluation gains out of our position or out of our investments.

We need to grow and ramp up our interest income, our fees and commissions so that we create the cash flows, which then creates space for dividends.

The second thing that has informed us in not paying a dividend is also understanding that when the macro-environment is going through a significant change, there will also be an adjustment at the micro level within the business and that change requires an operator to maintain a buffer of capital and be sure that we can sustain whatever shocks that might still be there in the adjustment to the environment.

TN: So the period under review, could you please split your sources of income? Where did they or where did your income come from?

SM: Excluding revaluation, you would see us making most of our money from fees and commissions, which include treasury activities that cover up to about 70% and then the 30% coming from the interest income.

We obviously need to increase the interest income and the thrust now has been to make sure that we cannot deploy in our customer loans prioritising the productive sector and the results have started to show after June.

TN: Your capital adequacy issue sits at 29% and there is a positive thread there that says we are ready to deploy assets into opportunities. What opportunities do you see where you are likely going to deploy your assets?

SM: Amongst our customers, we do see a lot of opportunity to partner in with their own efforts to either fund working capital requirements or to the extent that some of them need long-term funding or the project that they are embarking on, we also want to be involved in.

There is quite a significant pipeline that we are working on from amongst our customers and that is where a significant amount of that deployment will go.

TN: What is the mood of your clients? You are saying that you will deploy, seems to me that you see the potential. Are your clients positive going forward as far as the mood is concerned?

SM: One of the things that you will see in this environment is that you find it difficult to generalise.

You know in this environment where we are saying that there are significant headwinds, people are struggling with a phenomenon that seems to look like stagflation; you actually see pockets of operators actually growing.

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