FEBRUARY is the month in which lovers literally paint the town red. However, this year there appeared to be less love in the air as liquidity woes dampened the spirit of Valentine despite some silver-lined clouds that lingered on the horizon, appearing to signal an improvement in liquidity conditions in the months to come.
Financial Sector Spotlight With Omen Muza
As usual, at this time of the month, the Financial Sector Spotlight (FSS) takes a look at some key financial sector developments of the month and their implications.
Another one bites the . . . bullet
Early in February, the board of directors of NMBZ Holdings Limited made a profit warning announcement to its stakeholders. The group said that following a review of the banking subsidiary’s loan book, it had consequently increased impairment losses on loans and advances, which was expected to have a material impact on the results for the year ended December 31, 2013 and saw the group recording an attributable loss for the period.
While the announcement largely went unnoticed, the significance of the bank’s action should not be lost on anyone.
Instead of continuing to engage in self-deception regarding the quality of their assets and soldiering on under the burden of unsustainable levels of NPLs without adequately providing for them, banks just have to make a realistic reckoning of NPLs and make the necessary loan impairments sooner rather than later unless they are waiting for some sort of bail out. If they don’t bite the bullet, they might have to bite the dust!
Tentative steps towards interbank trading Continuing with its tradition of being a cornerstone financier for Zimbabwe, the African Export-Import Bank (Afreximbank) entered into an agreement under which a facility and associated instruments would be introduced to alleviate the liquidity challenges confronting the financial sector.
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The Afreximbank Trade Debt-backed Securities (AFTRADES) will be provided to participating banks as debt securities that could be used as collateral for interbank funds placements in order to promote interbank dealings among Zimbabwean Banks active in trade finance.
Given government’s inability (as opposed to unwillingness) to recapitalise the Central Bank – which is itself unable to issue the securities which banks would ordinarily use to secure each other’s positions in interbank trading – Afreximbank’s intervention is more than welcome. Was he pushed or did he jump?
A few days before Valentine’s Day, the CBZ Holdings Limited Board of Directors announced “retirement” of its board Chairman, Luxon Zembe from the position of board Chairman as well as from membership to the boards of CBZ Holdings Limited and CBZ Bank Limited with effect from February 10, 2014.
Although he went on to publish a “statement of appreciation” for the opportunity to serve the organisation and said he had made “a free conscience judgment call to retire” and focus on “consultancy work as a champion of anti-corruption crusade, rule of law and corporate governance” there was widespread speculation that his sudden departure was linked to the goings on at PSMAS where he was a board member.
Market watchers contend that whether he jumped or was pushed amounts to the same thing, swift action was required by one of the parties in order to nip the contagion effect in the bud and thankfully good sense prevailed. The fact that his replacement, Richard Wilde was only named on February 20, a good 10 days after his departure has all the makings of a hasty departure rather than a planned one. Lender sentiment softening?
The signing of a five-year, $10m loan agreement between NMB Bank and Proparco – the French development institution – is most welcome on at least four fronts. While it partly addresses the liquidity scourge currently blighting local credit markets, it must also be recognised for its signaling effect.
The return of Proparco, which used to be quite active in Zimbabwean credit markets, is likely to signal to other European commercial lenders who have been sitting on fences that it is now possible – in fact viable – to increase exposure to Zimbabwe.
The interest rates of between 12% and 15%, at which loans will be made after the bank accessed the money at below 9%, are quite reasonable compared to those currently obtaining on assets funded from local liabilities. Lastly, tenure of five years is very desirable against the background of the short-dated loans which are generally available in the market.
Temporary reprieve or turning point? The 2014 Tobacco Marketing Season opened on February 19, 2014 with high expectations that it would bring a change of fortunes by boosting liquidity and lifting aggregate demand. The critical issue however, is whether it will be a sustainable turning point beyond which the liquidity situation will progressively improve or a temporary reprieve which will flatter to deceive, only for the situation to revert to its sorry state once the season is over? Then we wait again for the next tobacco marketing season!
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