Panic hits banks
HARARE – Panic has gripped the country’s banking sector on how to comply following the upward review of capital requirements to $100 million by the Reserve Bank of Zimbabwe (RBZ).
Economic analysts say the hike was necessary to instil discipline in the banking sector although indigenous banks will struggle to comply with the regulations.
Economic analyst Christopher Mugaga from Econometer said the decision by RBZ governor Gideon Gono was meant to encourage the merger of indigenous banks to form strong entities.
“This is Gono’s indirect way of saying we don’t need all these banks, it is obvious, indigenous banks will not survive. This is a dark day for indigenous banks,” Mugaga said.
“This 800 percent hike is unattainable for indigenous banks, those that are going to survive doomsday will have to cluster into mergers.”
He said the move was an indirect message to Indigenisation minister, Saviour Kasukuwere that the “gospel of indigenisation” did not apply in the banking sector.
“He slapped Kasukuwere right in the face as it is unattainable to indigenise foreign owned banks,” Mugaga said.
Economist John Robertson said merger options were the initial intention behind the hike.
“Indigenous banks must look for merger opportunities as they face the possibility of extinction,” he said.
He said the central bank boss had come up with the minimum requirement hike to reduce the number of banks in the country.
“It’s obvious we have to too many banks in the country and this is just a measure to reduce that number,” the economist said.
Robertson highlighted that international banks will survive as they have international funding and support.
“Small banks will close if they don’t merge, but foreign banks have the support and will survive,” he said.
Robertson however said the proposed bank merger will face implementation challenges.
“Retrenchments will happen as most banks will not be able to accommodate the staff especially the senior executives. The surviving banks are going to be faced with the problem of serious insubordination.”
The Daily News was also told that a group of Zanu PF politicians were yesterday ganging up to approach President Robert Mugabe in a desperate bid to have Gono reverse his measure on capital requirements.
Gono’s measures come after government had considered legislation to force bank mergers to reduce the number of financial service institutions in the country and help ensure the sector’s stability.
Finance minister Tendai Biti early this year told Parliament’s committee on Budget, Finance and Investment Promotion that the country had too many banks adding several barely met minimum capital requirements thereby threatening sector-wide contagion.
New RBZ capital thresholds now require commercial and merchant banks, whose thresholds were pegged at $12, 5 million and 10 million respectively to up them to $100 million.
Building societies are now expected to pump in $80 million, while finance and discount house capitalisations have been set at $60 million.
Micro-finance institutions will now be required to have $5 million from the current $1 million.
Meanwhile, Gono attacked Royal Bank (Royal) management for failing to conduct their banking business in accordance with the Banking Act.
“The regulatory authorities are particularly concerned with the rapid deterioration of Royal Bank’s loan book over the 15 months since commencement of operations.
The recent on-site examination determined that 99.29 percent of the total loan book of $1.52 million as at 31 May 2012 was non-performing, including all exposures to related parties.
“..although the bank was fully aware of the level of its non-performing loans, it was misrepresenting information and data submitted to the Reserve Bank. The bank was critically undercapitalised with a core capital of $1,850 million as at 30 June 2012, which is way below the minimum regulatory capital requirement of $12,5 million for commercial banks,” he said.
The apex bank boss said the RBZ had determined that the same challenges that led to the demise of the institution in 2004 were being repeated.
“The unsafe and unsound condition of the bank depicted the unrepentant practices that were being perpetrated by the founding shareholders,” Gono said.
He said the bank will only be allowed to reopen if it recapitalises its operations, restructures the bank’s board and senior management “The bank’s chief executive officer, J. Mzwimbi and executive director-banking, D. Simba shall be required to step down from management in line with sound corporate governance practice which requires separation of ownership and management.”
Royal Bank surrendered its licence after failing to raise the required minimum capital requirements for commercial banks.