“I’ve written foreign banks off, they are not worth their salt. That is why we are amending the Banking Act,” Finance minister Tendai Biti dejectedly told Bloomberg.
Opinion by Omen Muza
You will agree with me that was quite drastic.
The source of his unmistakable frustration was of course foreign banks’ act of omission — persistently spurning Treasury bill auctions — and by extension — throwing spanners in the monetary and fiscal authorities’ works of rejuvenating the country’s capital markets.
This reminded me of how — around 2007 — comparable frustrations with foreign banks’ engagement with the local market and other market players reportedly forced the government and the central bank to devise a plan to transform the banking sector.
Four large indigenous financial institutions were to be created to rival the established foreign-owned banks namely Barclays Bank Zimbabwe Ltd, MBCA Bank Ltd, Standard Chartered Bank and Stanbic Bank. The plan, reportedly mooted in 2003, centered on FBC Holdings, ZB Holdings, CBZ Holdings and interestingly, ReNaissance Financial Holdings (RFHL).
“They want to create a strong locally controlled financial sector around the four institutions. The idea is to have a strong sector that government can rely on,” a source from the Central Bank was quoted by a local business weekly newspaper.
At the time, corporate actions such as FBC Holdings’ takeover of Southern African Reinsurance and Zimbabwe Building Society, CBZ Holdings’ takeover of Beverley Building Society, ZB’s takeover of Intermarket Holdings and ReNaissance’s hostile takeover of First Mutual Life (FML) were all considered important cogs in the machinery of this grand plan.
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Five years on, how has this plan fared? Despite significant early progress by indigenous banks and banking groups, foreign banks have continued to wield significant power in Zimbabwe’s financial markets. For instance, Standard Chartered was recently voted the Best Bank in Zimbabwe for 2012 by three entities — EMEA, The Banker as well as the Zimbabwe Independent’s Banks and Banking Survey.
Be that as it may, some local financial institutions have made significant strides. Admittedly, of the “chosen four” ZB and RFHL did not find the going easy since 2007, but CBZ Holdings has grown to become the biggest lender in the country by assets while FBC has also weighed in with a gritty performance.
So did the wheels come off the indigenous banking juggernaut? By all means no. I see it more as a case of loss of steam, not complete derailment.
Indigenous banks can rise again to cause the kind of anxiety that Trust Bank once caused amongst the so-called traditional banks in its heyday. But in the meantime, why have foreign banks maintained a firm grip on local banking?
First, dollarisation was a veritable spanner in the works of the indigenous banking revolution. It wiped away entire balance sheets overnight, causing banks to literary start all over again.
Second, foreign-owned banks have strong shareholders, who, cautious as they are, are relatively deep-pocketed while shareholders of indigenous banks had — just like their banks — to start afresh while dollarisation paused all kinds of recapitalisation problems.
Third, in the dollarised dispensation, foreign-owned banks opted to preserve capital by not seeking aggressive loan growth as seen in their relatively low loan-to-deposit ratios. Locally owned banks on the other hand have generally been lending aggressively, exposing themselves to significant default risk and the attendant risk of capital erosion.
Fourth, the aftermath of the 2003/2004 banking crisis coupled with the impact of recent closures of Interfin, Royal Bank and Genesis has resulted in depositors perceiving local banks as unsafe while foreign-owned banks remain solid and are considered stable, which confers competitive advantage upon them when it comes to deposit mobilisation.
Fifth, the lack of an active interbank market means that the liquidity “hoarded” by these foreign owned banks is — to all intents and purposes — sterilised and does not flow to deficit areas of the market which are mainly populated by locally owned banks.
It is interesting to note that while government previously tried to ring changes in the banking sector by encouraging market-based manouvres such as mergers and acquisitions, this time they have opted for regulatory intervention. Will the change of tactics achieve better results?
Feedback: [email protected]. Omen N. Muza writes in his personal capacity. He is a banker and Managing Director of TFC Capital (Zimbabwe) (Pvt) Ltd, a Harare based financial advisory, research and training company with interests in banking, mining and agriculture as well as the convergence area amongst them.
