The recently gazetted indigenisation and empowerment regulations compelling foreign-owned banks to dispose 51% stakes to locals could discourage offshore investors from bailing out ailing local institutions, a brokerage firm has warned.
According to a research note compiled by an advisory unit of MMC Capital, regulations may scare away foreign investors, who have in the past bailed out ailing banks, from saving other struggling financial institutions, as liquidity constraints continue to bite the domestic market.
The Indigenisation ministry last month published a Government Gazette instructing foreign-owned banks to dispose of 51% shareholding to locals within a year.
The ministry, according to the gazette ,said the minimum net asset value for the targeted banking institutions would be determined by the minimum capital requirements prescribed by the Reserve Bank of Zimbabwe (RBZ).
Zimbabwe has 24 operating banking institutions including POSB.
Five of the banks, namely Standard Chartered, Barclays, Stanbic, MBCA and Ecobank are foreign-owned.
Official figures show that foreign banks share of total banking deposits continued to decline from 2009, skewing towards domestic banks.
Given the systematic vulnerability of the banking sector, any negative impact on one bank will not only affect that bank, but would also have a domino effect on the entire economy at large, reads the MMC report in part.
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In a bid to fully capitalise the banking sector, foreign investors have been forthcoming in helping out undercapitalised domestic banks (recent cases in point are Kingdom Bank and Royal Bank).
Negative investor sentiments on the back of the indigenisation of banks would dampen efforts of the central bank to encourage partnership with international investors to secure adequate capital requirements for local banking institutions.
The current distress in local banking institutions (ReNaissance, Interfin and Genesis) shows the constrained capacity of indigenous investors to meaningfully invest in the sector, the report added.
Statistics show that the total profitability of foreign banks rose from about $4 million in 2009 to $18 million in 2010 and $32 million in 2011.
During this period no dividends were declared by the banks.
Official figures also show that just 15 of the 26 banks in the country made a profit in the first quarter of 2012 and in June one bank, Genesis, was closed by the central bank and Interfin was placed under custodianship.
Assuming that indigenisation was implemented in 2009, the actual benefit that would have accrued to locals in terms of dividends would have been zero for the three years, resulting in nil financial benefit to indigenisation, reads the report.
The regulations also attracted a chorus of disapproval from both within and outside the government with Finance minister Tendai Biti blasting them as unlawful.
