Banking culture not dead, just very sick

Economic Focus
GIVEN a choice between love and fear, I choose fear. You see, fear is strong and lasts beyond reason. It can be real or imagined but its presence can never be in doubt as it can easily assume such shape and form as is needed to fill in the gaps between time and space. Fear can shape a community’s belief and value system to become its way of life. A culture will have been conceived; a culture of fear.
The reputation of our banking sector was damaged by years of bad national economics and incessant banking scandals wrought by greedy fortune hunters who strayed into the banking sector as major shareholders. The banking graveyard is littered with banks which were curated and scores of unsuspecting depositors who lost thousands of dollars and livelihoods at the stroke of a pen. Our bank culture is characterised by fear; the fear of the unknown and the well-known.

Last year, Trust Bank had its licence cancelled and in keeping with our way of life, Capital Bank is now no more. Interfin Bank remains in the “terminal” care unit and it is a matter of time before the machine is switched off. So, when the Reserve Bank Deputy Governor Dr Kupukile Mlambo submits that post dollarisation, banks have failed in their quest to re-engender a banking culture in Zimbabwe one is forced to submit that assertion to public scrutiny.

It is in the public domain that a maid in Harare nicked $700 000 off a Harare man who had carelessly kept thousands of greenbacks in his kitchen drawers. In yet another similar but unrelated case it is thought that some $20 000 disappeared from the scene of an accident a few weeks ago. To many, this is ample proof that the banking system has failed to funnel billions of dollars back to the formal banking structures.

Not quite. The reality of the situation is that the banks have performed well beyond expectations even as they continually faced the threat of systemic risk posed by collapsing competitors within industry.

The banking problems in the country have become generational. Let me explain. Any man who finished school at the height of cash shortages never experienced the joys of taking out a girl to the cinema let alone buying her ice-cream. There was no cash for that kind of thing. A person who was 25 years old back then is probably 36 years old today. He saw his relatives die before getting to hospital as the Reserve Bank restricted cash withdrawals. Persons such as him will always have a dim view of banking.

I have friends, bankers, who were locked up on suspicions of having diverted cash to the black market. Years after the incident, a lot of them will tell you of plenty nights of tormented sleep. These were and still are law-abiding citizens who had never envisaged spending time in prison. Some now suffer from hyper-tension and are a sorry sight. They do not have kind words for the system that took away their innocence. Their children hold a troubling view of a banking system that took away their bubbly fathers replacing them with these broken shells. Our banking culture is characterised by fear, generational fear.

People have lost confidence not only in the banking sector but also in the governance system that is meant to protect the banking public from unscrupulous banking executives. It is common cause that the Reserve Bank unashamedly raided corporate foreign currency accounts belonging to unsuspecting depositors. This may have been done in the name of national interest but the simple truth is that “national interest” is a political concept that does not pay water bills at my house. That very act informed members of the public, as if they did not already know, that the regulator can act with impunity and still not be brought to account. Nothing has been done to correct this perception.

It gets worse. The day we were rescued from the painful jaws of inflation is also the day we were rendered penniless following the dollarisation of our economy. Bank balances, pensions and insurance policies which we had faithfully laboured to preserve for years were wiped out in an instant.

Now, as if to rub salt into an already festering wound, successive finance ministers have continued to mislead us into believing that some sort of compensation is well on its way. Time waits for no man and some of our people have since passed on but not before telling their children of the banking system that brought hunger and disease into their promising lives. Their fears have been passed on to their children.

Yes, the Government has repeatedly stated that the foreign currency regime in operation is there to stay and that members of the public should maintain their confidence in the banking system. The truth is, no one believes those pronouncements. Who in his right mind can believe finance ministers that have gone back on their words on several occasions? It is not as if they made those undertakings under duress.

Those of us who still use the banking system are only doing so either because of strictures forced upon them by law or because they have borrowing needs which can only be met by maintaining a bank account.

There is also the often repeated lie that people are keeping their money away from the banking system because of the inhibitive charges levied by banks on their clients. In Dr Gideon Gono’s last months at the helm of the central bank we saw an attempt at price controls in the banking sector through what was termed to be a Memorandum of Understanding. That attempt did not result in any discernable growth in bank deposits and the only significant development to date has been a sustained fall in banking profits.

In fact it is unbelievable to think that the Harare man found it better to save $4 in service fees while risking the loss of $700 000. There must be a deeper reason, perhaps illegal as well. When a bank makes losses, its capacity to lend is curtailed and this is part of the reason why there has been a sustained liquidity crunch. Oddly, it is still lost to many that when companies record losses Government gets less by way of taxes and thereafter its search for money will drag in Zimra.

Zimra’s complicity in making sure people stay out of the banking system is there for all to see. Banks are compelled by law to ensure that company bank account applications are accompanied by a tax clearance certificate and surely, any responsible citizen should be comfortable with that.

However, the problems often arise whenever Zimra fails to amicably resolve payment disputes with its clients. Bank accounts are garnished to the point of paralysing the very same cash cows they seek to milk resulting in companies abandoning their bank accounts. The often talked about non-performing loans are sometimes caused by this over-exuberance. Everyone, including Government, loses.

Get me right, I am not advocating for a society that does not pay taxes, no. What I wish for is a Zimra that is streetwise. A tax collector that understands that it is better to collect tax arrears in a sure steady stream, no matter how slow, than to force companies and banks into extinction. Zimra will tell you that their doors are always open for those of our citizens who want to negotiate. Really now? History will show that a conversation with a statue is likely to yield better results – you give up early enough. Our Zimra is not capable of negotiating with anyone without issuing threats and the usual “go to court if you think you will win” attitude. At this point let me not talk about corruption at Zimra.

Years of hyperinflation taught our people to eke out a living without paying taxes. All our transactions were cash based and the bank was only used for cash withdrawal purposes. Today we stand out as a damaged society which not only refuses to accept its tax obligations to Government but has also learnt how to do it well – by simply avoiding the bank. Cruel as this might sound, let me suggest that our generation of economically active adults must die in sufficient numbers before our banking climate can begin to improve.

Less cruel but equally effective over time is that, the Reserve Bank needs to be sufficiently resourced so that it can be in a position to perform its lender of last resort function effectively. The threat of systemic risk will always force the so-called international banks to shy away from counter-party transactions with “indigenous” banks leading to cash shortages among marginal banks.

A central bank that is technically insolvent will always lack the moral ground to speak with authority on matters related to financial probity. How does a naked man advise teenagers about the virtues of wearing long dresses without risking being dismissed as a mad man? The Reserve Bank is led by able people but its reputation is as tainted as some of the banks it seeks to regulate.

There is yet another factor that needs attention before our attitudes towards banking can change – politics. Consistency in policy formulation, enunciation and implementation by Government is critical if our country’s economic conditions are to soften. Once the economy starts performing well, incidents of rampaging, desperate and sometimes rent-seeking Zimra personnel will be few and far between. At that point confidence in the banking sector will surely return and Love, not Fear will abide.

Givens Hapadziwi is the head of Retail Banking at NMB bank. He writes in his own capacity.