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A synopsis of investment in banking sector

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Since dollarisation in February 2009, recapitalisation has been an uphill struggle for some local banks, a fact largely attributed to the liquidity challenges besetting the country.
Inevitably, the shareholder profile in these banks has changed notably, in many cases ushering in new local and foreign investors as indicated in the table, which is followed by an outline of some of the notable issues characterising the investment:

Declining interest from European investors: This can be attributed to two things — Zimbabwe’s high country risk profile and the impact of the eurozone crisis on the investment postures of European investors, banks included. With raging fires to put out in their own backyards and higher capital
requirements in line with Basel III regulations to fulfill, some European banks have actually been selling subsidiaries in places such as South Africa in order to meet these requirements.

Increasing interest from African investors: The rising stature of African banking institutions such as Togo’s Ecobank can no longer be ignored, hence their forays into new territory such as Zimbabwe.
Including abortive deals, investor interest in Zimbabwean banks has come from banks in countries such as Kenya, Malawi, Zambia and Mauritius.

The notable absence of Asian Banks: Despite the much vaunted “Look East Policy”, Asian investment — Chinese investment in particular — in the banking sector continues to elude Zimbabwe. The Infrastructure Development Bank (IDBZ) and ZABG were both once linked to the China Development Bank and in late April 2012, Interfin Financial Services was reportedly in talks with an investor of Asian origin. Chinese investors have also been reportedly enquiring about the government’s intension to dispose of 49% of its shareholding in Agribank, although IDC South Africa has been touted as a frontrunner due to its existing cordial relationship with Agribank.
Ambassador Christopher Mutsvangwa recently blamed the Reserve Bank of Zimbabwe for mishandling formative meetings that could have brought Chinese banks into Zimbabwe.

lThe irony of indigenisation: The irony — if not hypocrisy — of indigenisation is that while we call for the few remaining foreign-owned banks to cede majority shareholding to locals, local ownership in locally-owned banks has been diluted significantly since dollarisation and stands to be diluted even further during the imminent second round of recapitalisation. What exactly is this zero-sum game meant to achieve?

Sluggish local investor interest: Interest — real or imagined — in local banking investments has been expressed by a wide variety of local investors such as the group linked to Nicholas van Hoogstraten, which was once touted as a potential investor in Genesis, another group of investors including ABC Communications founder Supa Mandiwanzira and Gilbert Muponda’s GMRI which reportedly made a $35 million bid for ZABG and the Zimbabwe Mining Development Company which was reported by a government minister to be interested in acquiring 30% stake in ZABG.
However, only NSSA and Trebor & Khays have proceeded to make substantive investments in ReNaissance Merchant Bank and ZABG respectively, the two biggest investments so far.
Otherwise local investors are manifestly not overly interested in investing in the banking sector — at least for now. Why force those who currently own banks to sell them to those who have neither the means nor the interest to run banks? Tellingly, by the time Genesis Investment Bank folded, ZIMRE Holdings had sold its entire stake in the bank.

Compromise is the name of the game: In order to attract investment, whether local or foreign, compromise is necessary. Special dispensations to exceed permissible individual shareholder limits have had to be granted in the cases of Ecobank Transnational International’s initial 70% stake investment in the Premier Finance Group, NSSA’s 84% stake in ReNaissance and Trebor & Khays’ 99,9% stake in ZABG.

As the second round of recapitalisation looms, where will banks turn for additional capital? Is there enough liquidity in the local markets to meet the imminent capital requirements? Weigh in with your insights on omen.muza@gmail.com

NB. ADC’s investment in ABC Holdings has since grown to 25,9% following a further investment of EUR1,8 million and was set to increase to more than 35% line with ADC’s underwriting of the group $50 million rights issue. ETI has since reduced its equity stake in line with indigenisation regulations.

Omen Muza writes in his personal capacity. He is a banker and managing director of TFC Capital (Zimbabwe) (Pvt) Ltd, a Harare-based financial advisory company with interests in banking, technology and agriculture, as well as the convergence area among them.

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