Read market trends correctly

States dollar is not as elastic as the demonetised Zimbabwean dollar.
Some business people had developed habits, which are shed off today.
In the Zimbabwe dollar era people would borrow and the manna of our era (inflation) would assist the borrower to pay back. A loan had slowly been ingrained in people’s minds as a light and easier deliverable.

That was a pattern that gave birth to many millionaires today. Unfortunately, there are very few places in the world where the United States dollar has been elastic.
The end of the hyperinflationary period (like now) is going to create new millionaires, those who are smart enough to understand and grasp the new patterns.

On the other end the period is going to create new paupers, those who fail to understand that the inflationary period is over.
The financial sector is faced with three major challenges. One being that most of the borrowers’ mindsets are premised in the Zimbabwean dollar era.

With all due respect, the short-term interest rates of 20 percent charged on borrowers is not sustainable on most business models.
Most acceptable margins charged by most businesses are around 15 percent. There is a negative mismatch of 5 percent (holding all other things constant).

In theory the business is now working for the bank. Businesses can cover up for the mismatch if their turnovers are high against low cost structures.
This is not obtaining in our economic environment due to the fact that most consumers have low disposable income.

This assumption comes from the fact that Government (the biggest employer in Zimbabwe) pays out salaries ranging between US$180 and US$200, which is way below the poverty datum line of around US$500.
Most companies’ turnover is reasonable but not adequate to cover their huge overheads.

When the multi-currency regime was introduced, most businesses made wrong assumptions.
Salaries and other benefits were pegged very high without adequate consideration to the effects of these expenses on the performance of the business.

This challenge affects the utilities, private companies and public companies. This explains why some of the banks’ loan books are not performing.
Therefore, it can be inferred that most borrowers projections are still premised on the pre-2009 inflationary period than the current realities.

In fact, some businessmen and individuals have just joined the inflationary induced borrowing behaviour at a time when the inflationary pattern/life cycle is at the advanced stage of decline.
A quick synopsis of the listed counters show that some have actually asked the shareholders to bail them from the debts they had incurred but were failing to service.

The extent to which the shareholders will keep on agreeing to support rights issues of this nature is questionable in the long-term.
I foresee a new trend in shareholders activism which might result in them showing the management the door if they fail to read the market trends correctly.

Some of the people managing the financial institutions are still fantasising and craving for the sweetness of the economic rent which used to accrue to them due to the elasticity of the currency then.
If one borrowed a dollar it would grow easily into a thousand dollars if one invested in the stock market or foreign currency market.

It was not so difficult to repay the bank its interest of 30 percent per annum. Again this is a fallacy in our current dispensation.
Trends can instigate a habit of speculation as a way of life.

Speculating in a fairly illiquid economy using hard currency is a recipe for potential disaster.
The banking model (since 1995 thereabout) was driven mainly by foreign currency trading, parastatal unbundling, fee income and later stock market trading.

Looking at the drivers closely it can safely be deduced that out of the four key drivers only fee income appears to be the only viable driver in multi-currency dispensation though its sustainability is under serious threat from the depositors who are clamouring for lower fees.

The limited contribution to the banks’ income by the other three key drivers also threatens the viability of the industry.
Unless another pattern emerges in the industry surviving on traditional products is not going to be easy given the number of players who are now fighting for a very small cake.

The banking crisis is just a tip of the iceberg of the current failure by most managers to appreciate the new patterns under multi-currency regime.
If the truth is to be told, we are still very far from experiencing the full effect of the multi-currency regime.