Uncertain times: A broker makes a bid at the Zimbabwe Stock Exchange.
As the week's first day of trading closed at the Zimbabwe Stock Exchange on Monday, the indicator board told of a new wave of fear and panic in the country's financial sector.
A shock announcement by central bank governor Gideon Gono that banks must have at least $100-million in capital reserves has raised fears of mass bank failures and worsened tensions between Gono and Zanu-PF officials, who want bank takeovers in terms of the indigenisation policy – from which they would benefit.
In the aftermath of the announcement, investors have been selling banking stocks, bankers warned of mass closures and President Robert Mugabe has been asked to have the measures reversed.
Gono said the decision was meant to sift out the weaker banks and stabilise the banking sector. But bankers say few banks can raise that amount of money in a market that has already seen four bank failures over the past year and faces a deepening liquidity crisis.
To meet the new requirements, the banking sector needs to raise up to $3.6-billion in fresh capital. But with banks now rushing to merge, this figure may be halved, although it would still be too high, bankers said.
Stronger institutions
Gono hopes to force mergers and acquisitions. "It is time indigenous banks extricate themselves from the fringes of the financial sector and transform into indigenous Citibanks and HSBCs," Gono said.
But financial market analyst GMRI Capital in Harare said forcing small banks to merge was unlikely to produce stronger institutions. "A combination of weak banks will result in a bigger bank that is weak, which poses a more serious threat to the financial system," it said.
Gono's critics believe he is trying to make it harder to take over banks. Empowerment Minister Saviour Kasukuwere has given banks a year to sell their majority stakes to local investors, a move Gono publicly opposed. Raising the banks' minimum capital requirements to $100-million makes it more expensive for locals to buy into the banks.
Apart from facing pressure from bankers, Gono is also under pressure from Zanu-PF officials, who were reportedly planning to table the issue at a meeting this week of the Zanu-PF politburo, which Mugabe chairs.
Munyaradzi Kereke, a former top Gono adviser who was sacked earlier this year, said the increase in capital requirements would be "ruinous to our economy" and the decision "merits the RBZ [Reserve Bank of Zimbabwe] top team and the board being fired".
Unions worry that banks which fail to raise the capital will close down, throwing thousands out of work.
Sacrificed control
Bankers are already desperately seeking solutions. Many had already sacrificed control of their banks to outside investors to raise cash when capital requirements were increased to $12.5-million last year.
Banks who count the government and the national pension fund among their customers are also likely to struggle. Elisha Mushayakarara, head of ZB Bank, one of the country's oldest banks and in which the government has a stake, said his bank was now looking for new investors to raise the additional capital it needed.
Many bankers doubt that foreign shareholders have the appetite to raise that much money for Zimbabwean banks, because they have no hope of gaining control because of empowerment limits. They will also be reluctant to pump in more cash for the very low returns they get from their investments.
Gono said Zimbabwe's economy was too small to support its 25 banks. But his critics say the size of the economy cannot afford the kind of money he is demanding either.
According to the central bank's own data, the new capital requirements are higher than those in much larger regional economies such as South Africa, Kenya and Angola.
In an editorial, the state-owned Herald newspaper admitted that "we find it hard to imagine that any group of Zimbabwean shareholders can find an extra $87.5-million in two years". This means foreign money is needed, but foreign investor interest in Zimbabwe remains weak.