Holistic banking sector reforms vital

transactions involving Afre and its Renaissance.
These developments have conjured memories of the banking crisis in 2003 that spilled into 2004.
It appears that the incapacitation of the Reserve Bank of Zimbabwe, following the adoption of the multi-currency system in February 2009, might be triggering a new wave of pneumonia in the banking sector.
Having a total of 28 banking institutions in a US$5,3 billion economy must be worrisome as the piecemeal approach by RBZ to financial intermediation will not expedite the asset transformation role.
It is apparent but disputable that lack of comprehensive oversight in the financial service sector has drained almost all the hope that was bestowed in the country’s financial service sector.
A number of factors have the potential to see the weak state of our banking sector turning to become a burden not only to the fiscus, but also to employment statistics in the economy.
With the likelihood of the Reserve Bank closing its doors a huge possibility, who will police the ailing banking sector?
Its balance sheet depicts an undercapitalised institution incapable of bringing hope to the depositors who are already under the strain of disproportional bank charges and other fees.
What distinguishes the crisis of 2004 from that of the present day is the existence or otherwise of a weak central bank. If the situation is to get out of control now, the primary casualty will be the account holder since he/she does not have the insurance in the form of deposit fund to hedge from the vulture approach of most bankers.
Banking sector reforms are truly necessary but it has to be a holistic approach where you do not expect a father to discipline the kids knowing well that the same father is on permanent leave.
It is time Minister of Finance Tendai Biti and his officials crafted a strategy, which will resuscitate the Reserve Bank.
It might not be wise to spread the resources thinly across all sectors in the forthcoming fiscal policy when you are aware that capitalising the central bank with a figure below US$40 million will be just be a drop in the ocean.
What the current developments have shown is that the notion that some banks are too big to fail does not apply in this struggling economy.
The problems at Afre Corporation do not require a soft voice from the monetary authorities. A soft approach will promote stillborn institutions.
Most of the local banks seem to be lacking a true model of banking.
It’s surprising that banking institutions which were complaining of short-term deposits and unpredictable cash flow could wake up with staggering loan deposit ratios of above 70 percent.
To worsen the state of things, most of these loans are of poor quality and non-performing.
Such banks might need to be reminded that the mortgage crisis, which hit the better part of the West, was emanating from toxic assets such as non-performing loans, which were repackaged as credit derivatives or collaterised debt obligations.
In a normal economy, the continuous dominance of non-interest income in the financials of banking institutions could have spelt disaster, which could not be sustained.
In a recent survey of the top 100 banks in Africa there was no Zimbabwean bank in the top 100, a factor that tells a story of how weak the sector is.
I strongly believe the economy is overbanked, the only potential benefits of having 28 banking institutions in such a narrow economy is competition which is expected to reduce the transaction costs and widen the base for tax net.
However, the clandestine activities being exposed in most of the banking institutions is coming out as a survivalist strategy in an economy where the Reserve Bank has almost become dysfunctional.
If there is one sector which desperately needs foreign direct investment, it is banking.
Most of the capital is lying outside Zimbabwe and with slow recovery of the economy so glaring, the only catalyst which can spur growth is foreign direct investment.
It might be a golden moment for the banking institutions to merge thus creating synergistic benefits.
A maximum of 12 well capitalised banking institutions will augur well for this economy, the incentive to cheat is high if the cake which the banks are fighting for remains thin.
With a Gross Domestic Product of about US$13 trillion, the United States of America has an average of 8 000 banking institutions, the advancement of technologies and healthy employment figures supports the population size of the mentioned number of banks.
In CBZ, we have a bank which is holding an average of 22 percent of employees’ banking accounts nationwide. It won’t be a walk in the park for any other bank to join such a league.
Thank you and stay blessed.
l Christopher Takunda Mugaga
Head of Research
Econometer Global Capital
[email protected]
+263 772 340 353, +263 776 266 062