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BANKING
A club of failures or beacon of hope?
Barnabas Thondlana
Published: 14-JAN-05

This month will mark the official opening of what has been dubbed the largest locally-owned commercial banking firm in Zimbabwe, the Zimbabwe Allied Banking Group (ZABG). The new bank will pit the government and other local shareholders against three international banks that have been accused of drawing huge profits at the expense of Zimbabweans.

The three - Stanbic Africa, Standard Chartered and Barclays – happen to be the major banks operating in Zimbabwe. They reported an after-tax cost profit of Z$501.4bn in the six months to June 2004, compared with Z$24.961bn in the same period in 2003. This is an overall increase of nearly 2000% on the previous comparable period.

The formation of the ZABG marks the commencement of another era in the Zimbabwean banking sector. Some of the banks collapsed into this umbrella institution include Barbican, Royal Bank, Intermarket Discount House, Trust Bank, Time Bank, Intermarket Building Society and Intermarket Banking Corporation. Two financial institutions, First National Building Society and Rapid Discount House, have slipped into liquidation.

The new entity will have to convince Zimbabweans, who’ve already suffered at the hands of an unstable local banking sector, to deposit their hard-earned cash into the new bank. Already, Dr Gideon Gono, the Governor of the Reserve Bank of Zimbabwe (RBZ), is hard-pressed to convince sceptical Zimbabweans that “ZABG is built upon good corporate governance”, in an apparent reference to imprudent business practices that have been set by other locally owned and managed banks.

The RBZ says the establishment of ZABG preserved the localisation of the financial sector, but some analysts are not convinced. “The jury is still out on the ZABG. There is a real danger that the bank will drag on and on without attracting new depositors and banking on government,” said one independent analyst in Zimbabwe.

Optimistic analysts have proclaimed the move to merge the collapsed banks under one umbrella bank as arguably the best thing that could have happened to Zimbabwe’s banking sector in recent years, although sceptics question the viability of the operation.

“Because of its background, it is being viewed as a club of failures, an association of the weak. Depositors have became wary of who they trust their money with. That caution is likely to blind the depositor to any attempts to convince them that the ZABG is an entirely new bank, that whoever burnt them in the past cannot burn them any more,” said one analyst.

It would appear that Dr Gono has been systematically preparing for the consolidation of the country’s banking sector since taking offi ce. Last year, the RBZ triggered a run on banks by setting a September deadline for all fi nancial institutions to declare their capital reserves and show they have enough liquidity to continue operating. Dr Gono eased the pain by announcing that Central bank offi cials would work with shareholders, directors and managers to keep troubled institutions afl oat by recapitalising them.

Recently, he told a breakfast meeting debating the central bank’s third quarter monetary policy statement in Harare that ZABG would be “three or four times bigger” than the individual existing banks in Zimbabwe. It has the mandate of spearheading long-term capital projects such as infrastructure development.

The ZABG has been capitalised to the tune of Z$2 trillion. The figure has raised alarm amongst some analysts, who argue that it would place infl ationary pressures on the economy. At the end of 2004, Zimbabwe’s infl ation rate was stubbornly sitting above 200%, although this was an improvement from the alltime high of 622% at the beginning of the same year.

The ZABG is seen as the first major step towards strengthening the financial sector, which suffered from under-capitalisation, instability and scandals for most of 2004. Banks still on the Troubled Bank Fund (TBF) are likely to be roped in into the quasi-government fi nancial group later in the year.

The TBF is a facility created by the RBZ as bridging fi nance for institutions that had been forced to borrow from the central bank to stay afl oat. The institutions were given a deadline of November 30 2004 to repay the loans, failure of which would result in the loans being converted to equity.

The central bank created the Allied Financial Services (AFS), a special purpose vehicle which holds equity in the troubled banks. AFS is jointly owned by government, by virtue of the central bank’s injection of funds into the troubled banks, creditors and depositors whose savings have been converted into equity.