Foreign banks limit local risk
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Foreign-owned banks and other financial institutions have started limiting their exposure to locally owned financial institutions in Zimbabwe, as executives warn that systemic risk has risen, even after the Reserve Bank of Zimbabwe (RBZ) reported that the banking sector was sound.
Sources in the banking sector said foreign-owned banks, which have been treading cautiously in the domestic market, have become more nervous after losing money in at least two failed banks recently.
"We're not seeing any interaction between Zimbabwean banks and foreign-owned banks on the money market. The foreign-owned banks tend to view us as lepers," an executive at a local financial institution told the Mail & Guardian.
He said that there had been instances in the past few weeks in which smaller banks had failed to pay maturities to investors, but blamed this on a liquidity crunch precipitated largely by the use of foreign currency after Zimbabwe ditched its own currency in 2009.
One banker said his institution was facing a "severe liquidity crisis" after the country's biggest pension fund refused to roll over maturities. The bank had, however, met the central bank's new capital requirements.
Although the central bank had said banks would comply with the new capital levels in a phased manner, beginning with capital of $25-million by last December, $50-million by June, $75-million by December 2013 and $100-million by 2014, RBZ governor Gideon Gono last week said banks would now be required to meet the $100-million capital levels by 2020.
Zimbabwe has 16 commercial banks — excluding the failed Interfin Banking Corporation, which is under recuperative curatorship — two merchant banks and three building societies.
The best capitalised bank is CBZ Bank, whose capital level was said by the RBZ to have reached $111.79-million in December 2012, followed by British-owned Standard Chartered Bank at $56.50-million, Standard Bank-owned Stanbic Bank at $45.62-million, Botswana-listed ABC Holdings' BancABC at $38.42-million and British-owned Barclays Bank at $34.30-million.
The other banks are lower down the list, with Nedbank-owned MBCA Bank at number 10 on the list of compliance, having achieved a capital level of $27.97-million.
But banking sector sources said Gono had allowed banks to use properties to meet new capital levels. Some banks had revalued their properties, significantly pushing capital levels up, even when financial institutions were still grappling with the liquidity challenges troubling the sector.
Last week, CBZ Bank's major shareholder, CBZ Holdings Limited, said it had begun the hunt for an offshore investor to inject funds into the bank to boost liquidity, surprising a market that had viewed it as "cash rich". CBZ Holdings chief executive John Mangudya said it was looking for a "like-minded" new investor as supportive as existing shareholders.
The banking group's current major shareholders are the Zimbabwean government (16.08%), the Libyan Foreign Bank (14.12%), Africa Investment Sub 2 (13.54%) and the National Social Security Authority (10.48%).
Though Gono said in his monetary policy statement in January that Interfin's status "did not affect the entire banking sector, as would have been the case if it was a large bank", banking sector sources said several banks were left reeling because of Interfin's failure to pay maturities.
"It's a big dent, given the liquidity situation in the market," said a banker whose institution is owed about $3-million by Interfin. "You can't downplay the effect of that [default]."
Interfin owes more than $100-million to depositors, the government and other banks.
Even before Interfin's collapse in June last year, Finance Minister Tendai Biti had warned of bank failures because of an increase in non-performing loans in the banking sector. The situation is becoming more dangerous, with Gono indicating that the loans-to-deposits ratio, though marginally down at 79.79% in 2012 from 81.79% in 2011, is still too high in an illiquid market.
Foreign-owned banks, which with CBZ Bank control 80% of deposits, have taken a conservative approach towards lending, courting the ire of regulators. Now, their lending regime, though still criticised, has been vindicated after locally owned banks have started experiencing problems because of increasing default levels.
CBZ Bank had to review its lending policy after its non-performing loans shot up to $48-million in 2011 from just $1.7-million in 2010, triggering a liquidity crisis that affected its electronic transfer system. Last week, Mangudya said the bank had reduced its non-performing loans to $41-million in 2012 "by aggressively pursuing debtors as well as selling off collateral assets". Previously he had told investors: "We learnt our lesson. That is why you see there is only an anticipated 5% growth in loan advances this year ."
It might be a lesson learnt too late for the other banks.