HomeOpinion & AnalysisColumnistsBanks musn’t be made to suffer for egos

Banks musn’t be made to suffer for egos

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There is little disagreement that political grandstanding, ego and selfishness have become the norm in policy implementation in Zimbabwe. Very little attention is paid to the consequences of policies on other sectors of the economy.

Most policymakers and politicians have fallen into this trap. The Reserve Bank of Zimbabwe (RBZ) and the Indigenisation and Economic Empowerment ministry have not been an exception. Based on his actions and declarations, there is little evidence that Minister of Indigenisation Saviour Kasukuwere does enough consultation with the other ministries and policymakers in implementing the indigenisation policy.

Regarding the indigenisation of the banking sector, one flawed argument that has been put forward is that foreign-owned banks are not helping new farmers. I am not against financing farmers. However, I believe that supporting the new farmers, although socially profitable, is not commercially viable for banks, at least for some years to come. This calls for the role of the government. The government could use the proceeds from diamond mining to finance the agricultural sector.

These loans can be disbursed through Agribank.
And this exercise should be accompanied by accountability and strict mechanisms for repayment of loans. If the government is not willing to finance the new farmers, then it should not expect commercial banks to venture into this risky business. The Ministry of Indigenisation recently suggested using the proceeds from mining to finance sovereign wealth funds. If we think risk-return profile of the resettled farmers is positive, why can’t we have a portfolio from the sovereign wealth funds into farming? In a related move of selfishness, RBZ governor Gideon Gono raised the minimum capital requirements for banks to US$100 million from the current US$12,5 million. The governor gave a number of reasons for this decision. Well, if the objective is “to protect depositors”, then it is quite commendable.
Moreover, research has also shown that high capital requirements reduce banks’ leverage thereby lessening the probability of bank failures.

Given the recent problems in the banking sector in Zimbabwe, there is a case for a high capital requirement. However, if the capital requirement is too high, it limits the banks’ ability to create liquidity resulting in high interest rates charged on loans.
Thus, while I agree on the need for high capital requirement, I do not really agree that the magnitude of increase is reasonable given the liquidity constraints that Zimbabwe is currently facing. The increase is also so much higher relative to other Sadc countries.

The governor also argued for the consolidation of the banking system. To justify this, he presented a comparative analysis of Zimbabwe’s GDP relative to other African nations. It is very difficult to buy his story for two reasons.

Firstly, if the governor feels that the number of banks should be related to the level of GDP and population (which is not bad), then the new capital requirement should be set as a percentage of GDP. In this case, we cannot have a capital requirement that is comparable to Nigeria and South Africa whose GDPs are 20 times more than ours.

Secondly, the governor ought to be reminded that there is vast empirical evidence that a concentrated banking system might complicate the effectiveness of monetary policy due to collusive behaviour of banks.

Furthermore, while the BASEL III encourages policymakers to create incentives for banks to strengthen their risk management techniques, the governor does not say anything about this. How does a wholesale increase in the capital requirement help in this regard?

I also believe that the problems being experienced by Zimbabwe’s financial sector are more than capital-related. For instance, much of the bank problems we have are linked to breach of capital governance and lending to politically-connected people.

In the past two years, we have had so many news headlines of political and economic “gurus” who have failed to pay back loans. Unless these issues are dealt with, the effectiveness of the capital requirement, even if it were to be set at R1 billion, is a pipe dream.

The capital requirement policy has also been hastily enacted without due consideration of its effects. In the fiscal policy statement that preceded the monetary policy statement, Finance minister Tendai Biti revised down the economic growth projections. One of the reasons behind the expected slowdown in growth is liquidity constraints.

However, the governor has decided to even tighten the liquidity further by increasing the capital requirement tenfold. It is obvious that banks will directly pass the costs associated with sourcing extra liquidity to their customers. This will then have a knock-on effect on growth and poverty. In fact, studies in Europe estimate that the implementation of the BASEL III will lead to between 0,1 to 0,25 percentage points reduction in growth. This could be even worse for a country like Zimbabwe which is already faced liquidity constraints. One wonders if there is any consultation between the fiscal and the monetary authorities.

I believe that the governor’s decision is motivated by nothing, but fighting his own battles. Anyone who has followed the “fight” between Gono and Kasukuwere with regard to the indigenisation of the banking sector can agree that the new capital requirement is the governor’s attempt to stamp his authority that he is the chief of the banking sector. Unfortunately, this is to the detriment of our economy. Gono’s position on indigenisation of the banking sector has been correct so far. I agree that instead of trying to share a small pie, indigenisation should be about creating value. People who believe they are entrepreneurs should search for untapped opportunities in the banking sector.
However, by increasing the capital tenfold, the governor has lost it. He has effectively closed opportunity not only for the “wholesale-type” of indigenisation, but also the “value-creation-type” indigenisation which he has courageously fought for.

Issues of national importance have been reduced into a two-man fight. Instead of directing their energies to saving the economy from collapse, politicians and policymakers prefer to engage in catfights for ego and political expediency. For Zimbabwe to succeed, we need to rise above these petty issues.

Ziv Chinzara is an independent economic analyst, mentor and currently a PhD (Economics and Finance) student in Australia. He writes in his individual capacity. Email: -zivchinzara@yahoo.com – newzimbabwe.com

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