It’s high time banking sector gets back to basics

policies: a deal with Afreximbank that will swiftly inject US$80 million in banks, the liquidation of US$110 million in Special Drawing Rights that also boost liquidity while allowing the Government to pay for some of its capital programmes without putting extra pressure on the banking sector and ensuring that it is more profitable for large multinationals operating in Zimbabwe to keep their cash here.
If all goes according to plan, the Reserve Bank of Zimbabwe will have US$100 million to ensure that it can perform one of the two main duties of a central bank, being the lender of last resort.
But the plan appears to ensure that imprudent banks cannot just use this facility to, in effect, capitalise themselves, a problem that arose during the banking crisis in the inflation era. Banks will be able to use their Government loan book and at least some of their loans to the productive sector as collateral when approaching the RBZ, but the rest of their problems will remain theirs, not the RBZ’s.
The RBZ needs to be rigid when applying this policy. Sovereign debt is being used, so it must be used for the benefit of Zimbabwe as a whole, not small groups of people running undercapitalised, overstressed banks that seem to exist for no other reason than to provide cash for the same small groups.
Today is the deadline for the worst undercapitalised banks to meet minimum capital requirements. Those that cannot do this, and there will almost certainly be some, cannot be given more extensions of their deadlines. They must be simply told to quit, with the RBZ and Government ensuring that depositors can be moved to other banks without inconvenience.
For some banks the sole remaining asset they still have is their banking licence. We suspect that some are only staying in business in the hope they can sell this. The RBZ could end that bit of speculation by making it clear that new licences could be granted to anyone who can set up a proper capitalised bank with the new requirement of majority Zimbabwean shareholding. The licences then become almost worthless, which is as it should be. What matters is good banking with adequate capital, not the piece of paper.
It has become clear that there are no local investors for some of our worst banks and that they are desperately hoping for a foreign saviour who wants to enter the Zimbabwean market on a white horse by rescuing a near defunct local bank. This makes a mockery of the indigenisation policy, if nothing else. Minister of Finance Tendai Biti last week also indicated that the Government would be sharing out its business more fairly, the fact that one bank has tended to dominate this business is not just unfair, it has put too much stress on one bank and on the Government itself.
The sorting out of liquidity and the move from ad-hoc arrangements to a more regular and institutional banking sector will, we have been told, be accompanied by ever tighter regulation of the banking sector.
Most countries have discovered as a result of the near banking disaster of the last five years that far more oversight and far better stress tests are needed. Different capital requirements are needed depending on a bank’s assets, the quality of its loan book, and the quality of its deposits and wholesale borrowing. Zimbabwe needs to join the modern world here. Cleaning up banks does not mean the sidelining of the indigenisation drive. But it does mean that we might have to take a bit longer in this sector, with a bite each year rather than a one-off jump.
At the same time we need to establish a savings culture, so that ordinary Zimbabweans save rather than borrow for consumer goods. This requires the RBZ, the Finance Ministry and the banking sector to think carefully. We cannot create a modern Zimbabwe without our own capital and that needs Zimbabwean savings.
The authorities have to be able to list those banks where people can be assured their savings will be safe; they also need to put in place a deposit insurance scheme so that if a bank does go under all ordinary depositors will get their money back promptly. Premiums will be trivial for banks if only sound banks are included in such a scheme.
At the same time banks need to be encouraged to go after the ordinary saver. Offering deals to people able to deposit US$5 000, or US$50 000, and these sort of figures are common, is not helping the mobilisation of savings. To the best of our knowledge only one building society and one bank are seriously looking at the ordinary person. Modern software means that costs of running a savings scheme are trivial, so there must be incentives to make banks want such schemes and savers want to use them.
The destruction of Zimbabwe’s savings and working capital in the inflation era was a serious blow, the ad-hoc arrangements made when we switched currencies were needed. But those days are over. We now need an ordinary banking system doing ordinary boring banking.
The measures being mulled to get rid of the cowboys and reward good banking must be implemented quickly.