Financial Sector Spotlight: The month of August in five

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As usual at this time of the month, I review the major financial sector events of the preceding month.

Financial Sector Spotlight with Omen Muza

However, the month of August was — just like July — rather uneventful, presumably because business is still caught up in the usual post-electoral speculative mode under which anxiety about policy direction and appointment of cabinet grips the market, with not much happening on the ground.

Departing slightly from the norm of focusing exclusively on local financial markets, this instalment also covers some interesting international news.

Putting rumours about ZWD Return to bed

The month began in earnest when on August 6 2013, the country’s monetary authority — the Reserve Bank of Zimbabwe — moved to dismiss swirling rumours about the possible return of the local currency after Zanu PF secured the mandate to form the next government.

“Reference is made to rumours circulating in the market and uninformed pronouncements suggesting the immediate or near term return of the local Zimbabwean currency by whatever name. This statement serves to emphatically dismiss those rumours and to confirm that there are no plans whatsoever, within and outside the Bank, for the immediate or near-term introduction of new currency or reintroduction of the Zimbabwean dollar into our system . . . The multi-currency regime will be with us for the foreseeable future and in any case, when the time comes, the local currency will circulate alongside other existing currencies with people exercising their choice of currency to hold,” said Reserve Bank governor Gideon Gono, emphatically setting the tone for the currency reform agenda.

June 2013 Interim Results

The financial sector reporting season began in earnest with CBZ Holdings Limited being the first institution to release its results on August 8 2013.

By the end of the month, a total of 17 financial institutions had released their interim results with eight (47%) recording a fall in after-tax profits while nine 53% recorded increases in profitability compared to the first half of 2012.

This set of results reinforces the strong link between low capitalisation and poor profit performance.

Generally, institutions which struggled to meet statutory minimum capital requirements during the period under review either saw a drop in profits or recorded outright losses.

The profitability woes were attributed mainly to the impact of the BAZ/RBZ MoU, pre-election business slowdown and rising operating costs.

Total losses for the sector amounted to $5,5 million, while total after-tax profits amounted to $57 million.

Foreign Equity Investor for CBZ Holdings

Later in the month, a cash-rich Malaysian–based private equity fund, Safari Quantum, reportedly snapped up more than a tenth of CBZ Holdings’ issued shares in a special bargain deal worth $8,3 million.

Safari Quantum are said to have bought 55 671 681 CBZ shares on the August 16 2013 at a price of 15 cents per share as CBZH continued its quest to diversify, but at the same time consolidate its shareholder base.

The Future of Banking: Could Facebook become Facebank?

One international show I follow and particularly like is The Motley Fool’s financials-focused Where the Money Is.

Recently, I was intrigued by analysts Matt Koppenheffer and David Hanson’s discussion on the show about the future of banking.

What could prevent today’s tech giants such as Google and Facebook from disrupting the banking industry and becoming the centre of consumers’ social and financial lives, they ask?

While acknowledging the existence of regulatory fences surrounding the banking sector, which could hinder such a transformation, they argue that the potential convenience and efficiency available to the average consumer may ultimately trump the roadblocks.

The analysts also controversially argue that even if the likes of Google and Facebook don’t enter the banking business, the golden age of banking appears to be waning. Food for thought.

$13 billion policy scandal

Another interesting issue from the international scene is the so-called “policy scandal” under which CPP Group Plc (CPP) provided insurance through United Kingdom lenders, overstating the risks and consequences of identity theft and failing to tell buyers of its card-protection product that they were already covered for losses of as much as 100 000 pounds by their banks.

As a result, seven million customers bought 23 million insurance policies which they either did not need or to cover risks that had been grossly exaggerated.
According to the London-based Financial Conduct Authority, a group of 13 British banks and credit-card issuers, including Barclays Bank Plc which operates a subsidiary in Zimbabwe, will fund the redress programme to the tune of up to 1,3 billion pounds ($2 billion), with the affected customers able to claim a refund on the premiums they paid plus 8% interest.

The compensation adds to the 15,5 billion pounds Britain’s banks have already set aside for customers who were wrongly sold payment-protection insurance that they didn’t need.

Given the scale of this duplicity, small wonder the bank-bashing bandwagon keeps growing.

I couldn’t help but wonder whether we have comparable processes and procedures for customer redress in Zimbabwe in the event of such market failure.

Feedback: omen.muza@gmail.com. Omen N. Muza writes in his personal capacity. You can view his LinkedIn profile at zw.linkedin.com/pub/omen-n-muza/30/641/3b8