The African Development Bank (AfDB) has warned that recently gazetted indigenisation and empowerment regulations will dampen confidence in the country’s fragile banking system.
In its latest monthly economic review for Zimbabwe, the AfDB said forced mergers would undermine the financial sector.
Youth Development, Indigenisation and Economic Empowerment ministry issued a general notice compelling foreign-owned banks to dispose of 51% equity to locals.
The government notice targeted foreign-owned players in the tourism, education, sport, arts, entertainment and culture, engineering and construction, energy, services and telecommunications industries giving them an ultimatum of one year to indigenise their ownership structures. Out of 25 banking institutions in the country, seven are foreign-owned and a few have indicated that they were in the process of complying with the regulation.
Experts say foreign banks have strong and healthy financial positions in relation to their local counterparts.
This, according to the AfDB, can be attributed to their foreign ownership structure that had allowed them to access and mobilise external loans, easily riding on the credibility of their foreign shareholders.
“Forced restructuring of bank ownership structures is likely to further undermine confidence in the banking system and perhaps worsen the liquidity crisis in the economy,” reads the AfDB review.
“If not handled carefully, this policy can have dire and far reaching consequences on the economic recovery and development of the country.
“This may spark bank runs on the targeted banks.
“Given, the low confidence in the local banks, a run by the foreign-owned banks may simply result in people shunning away from the banking sector or considering other creative strategies for keeping their savings.
“This would result in a fall in intermediation, thereby undermining the country’s growth prospects.”
The regional bank also attributed the sluggish performance of the Zimbabwe Stock Exchange (ZSE) to liquidity constraints, low capacity utilisation, as well as high production costs arising from the use of out-dated methods of production and technology.
The ZSE shed $157 million turnover value between January and June this year compared to a similar period in 2011.
“The conflicting remarks on the implementation of the indigenisation policy have also impacted the ZSE negatively through raising fears and prompting investors to be more bearish,” reads the report.