ADDRESSING delegates at a recent Confederation of Zimbabwe Industries (CZI) breakfast seminar, Reserve Bank of Zimbabwe (RBZ) governor Gideon Gono indicated that he had extended the deadline for banks to meet the $100 million capital threshold from 2014 to 2020 in line with the banking sector’s Vision 2020.
Report by Omen Muza
While there may be valid reasons for it, this recapitalisation reprieve would have struck some as an anti-climax of sorts, considering that the banking industry is clearly in need of something significant to lift it from its current quagmire.
Yes, the olive branch will be welcomed by banks because it relieves short term pressure, but I suspect that there will neither be time nor cause for much celebration.
The long-term pressure to recapitalise will remain an elephant in the boardroom, so the mood in the banking sector is likely to be one of relief and cerebration (using the power of reason) rather than one of celebration. Given the competitive headwinds that are gathering in the banking sector, no well-clued bank will want to take the foot off the pedal for fear of losing critical momentum.
Who wants to have a sub-optimal capital base when others are in the higher echelons of liquidity?
In any case, even if celebrations were in order, banks are still to receive official notification of the new timeline, hence the cautious optimism with which they proceed with original recapitalisation plans.
“The RBZ’s Vision 2020, of which recapitalisation is an integral part, is still to be fully articulated.
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“In the meantime, we err on the side of caution and recognise the originally set thresholds, until the Reserve Bank of Zimbabwe communicates otherwise,” said George Guvamatanga, BAZ President.
Gono said that the extension was largely in response to concerns raised by potential foreign investors keen on investing in the banking sector, but are unable to commit themselves due to the requirements of indigenisation.
Interestingly, the new capital levels were once viewed as Gono’s gambit in staving off the indigenisation onslaught on the banking sector, so it is ironic that the relaxation of the compliance deadline is now attributed to challenges associated with indigenisation. It’s a small world.
Given that the new capital requirements were pegged at much higher levels than regional averages, the reprieve may also be viewed as tacit admission that the original deadlines were way too ambitious and did not recognise the unique situation of Zimbabwean banks whose balance sheets literally disappeared overnight in February 2009, leaving them to shoulder the recapitalisation burden on their own with little, if any, assistance from government.
The irony of it is that the high country risk which notoriously throws spanners in banks’ recapitalisation works is largely attributed to the commissions and omissions of the very same political and regulatory authorities who now vigorously pursue banks’ compliance.
A clear benefit of the revised timelines is that they favour organic growth, a more sustainable way of creating value, as opposed to acquisitive or merger-and-acquisition led growth, which is at best a smokescreen for lack of organic growth and can, at worst, actually be an agent for the destruction of value.
As at 31 December 2012, CBZ Bank, with a capital of US$111,79 million, had already exceeded the June 2014 threshold of US$100 million, while at US$56,5 million Standard Chartered Bank was edging towards the December 2013 threshold of US$75 million. Others such as Stanbic (US$45,62million), BancABC (US$38,42 million), Barclays (US$34,3 million) and ZB Bank (US$32,34 million) were well on their way to meeting the June 2013 threshold of US$50 million.
At this rate, one can argue that sufficient critical mass has already been mobilised and the RBZ governor can afford to relax, take the foot off the pedal (which ironically banks can’t afford to do in turn) and let evolutionary growth, which is premised on survival of the fittest, do the rest.
Given a chance, market dynamics will drag the weaker banks gradually into compliance, or cause them to fall by the wayside as the overall sector can only be as strong as the weakest bank.
By simply applying sustained regulatory pressure and sufficiently highlighting the benefits of adequate capital such as stability and the ability to attract more credit in order to underwrite more business, the RBZ governor has over the past nine months succeeded in transforming the recapitalisation agenda from a mere regulatory ritual to a market imperative with implications on the competitiveness of market players.
Those who allow themselves to be lulled into a false sense of comfort by the new compliance deadline will only have themselves to blame when they become irrelevant in the competitive stakes.
