Wall St. and Business Wednesdays: Zimbabwe's Indigenous Banks Face Collapse
Zimbabwe’s indigenous financial sector faces imminent collapse as the clampdown by the Reserve Bank of Zimbabwe has eroded depositors’ confidence in banks set up in the spirit of indigenisation, while tens of thousands of depositors are likely to lose their investments in collapsed banks, analysts said yesterday.
Government’s extension of the indigenisation policy to the financial sector saw many black entrepreneurs establishing commercial and merchant banks in a sector dominated by mostly foreign multinational banks.
Proponents of indigenisation hailed the move which saw young black entrepreneurs launching their own banks and shaming the prophets of doom by posting impressive results.
The indiscipline that had crept into the banking sector is however now threatening the survival of most indigenous banks following the collapse, so far, of two banks.
The effects of this indiscipline have been that many, if not all indigenous banks, have now been painted with the same brush and those that have had their books inspected and found to be operating above board have unfortunately, witnessed the flight of depositors to multinational banks.
While the monetary policy announced by RBZ governor Dr Gideon Gono remains a brilliant paper, the analysts said, there were fears its implementation had now been personalised and that it was being rushed, with the net result that indigenous banks now face imminent collapse.
Even parastatals that have been doing massive business with some indigenous commercial and merchant banks have withdrawn their money to deposit with established banks.
"We acknowledge that the culprits should be dealt with in a very sober manner that does not erode depositors’ confidence in indigenous-run banks,’’ said a source in the sector.
Some indigenous merchant banks have propped up the Government during the fuel and maize crises by carrying huge debts for the Grain Marketing Board and Petrofin bills at a time the Government could not get any support from established banks.
This, the source said, did not mean that indigenous banks caught on the wrong side of the law should be let scot-free. Those found to have committed crimes should certainly be held accountable but to give the impression that indigenous-owned banks were a risk was instilling fear among depositors.
There were some indigenous banks that were doing well and the RBZ would do to prop them up, said a banker who declined to be named.
Because of the recent developments that have seen banks being closed and placed under curatorship, there is growing uncertainty, as people wonder which bank will be next to close.
"Under such a scenario, where do you get deposits? We have got to a stage where we are now saying if the RBZ does not want indigenous banks, then it is free to take back the licences.
"There has not been any consultation from the RBZ but just an onslaught. We think the RBZ has gone too far with its clampdown and has succeeded in instilling the spirit of fear,’’ said another source.
The sources said there continues to be enormous support from all sectors of the economy, including the financial sector, for the RBZ to deal with the problems afflicting the sector but that it should be done in a manner that does not affect market confidence.
If the RBZ wants to reduce the number of banks, they said, there are ways in which this could be done without affecting depositors’ confidence, and in this regard mergers are an option.
"If we are going to be honest with ourselves, the whole country is guilty of externalisation and those companies that embarked on regional drives certainly externalised money for there was no way they would have done it.
"What is needed now is for everyone to sober up and have an amnesty where everyone who externalised money or flouted exchange control regulations should be asked to return the money so that we start afresh as an economy. The current onslaught is not good for us. We are destroying ourselves,’’ said another source.
Sources said South Africa called for an amnesty and recovered billions of dollars. They said the same could be done here without explanation. The culprits should be dealt with but at the same time, everyone must strive to build confidence.
There has also been concern that the RBZ was targeting entrepreneur banks – those owned and run by their founders. But investigations by the central bank have exposed some of the bank founders guilty of various offences such as insider lending, externalisation, mismanagement, among other issues of governance.
In the meantime, lifestyles have changed for the worse for tens of thousands of people over the past few days after last week’s closure of three subsidiaries of Intermarket Holdings and Barbican Bank.
Worst affected are those who banked with Intermarket Building Society, formerly Founders Building Society, which was the second largest building society in the country after Cabs.
Long bank queues which disappeared after the introduction of bearer cheques late last year, resprouted outside Intermarket Building Society banking halls as depositors jostled to withdraw their money, some their lifetime savings.
Most have tales to tell. Some needed to withdraw the money to pay rent, some to buy medicine or pay hospital bills, while others wanted the money to buy groceries for their families.
Intermarket Building Society curator Mr Ngoni Kudenga said the bank would open to enable only those whose salaries are paid through it to access their salaries.
When the building society opened for salaries, other depositors had joined the fray hoping to also withdraw their money out of the institution but they were turned away.
Mr Kudenga said while he appreciated and sympathised with the plight of all depositors and investors, there was not much he could do about it except work hard to get things right.
This means all other depositors will have to wait for six months before they can access their money.
Ironically, Mr Kudenga said mortgage account holders are required to maintain their monthly mortgage repayments and has arranged to allow repayments through any of the Intermarket Building Societies.
Mr Atinos Chivura of Harare, who runs a welding business at the Gazaland Shops in Highfield, said he has not been able to buy materials for his business since the bank was closed.
"In my business, I have to buy the material required for me to process orders. That is how I make money and all along, I was depositing all my earnings into Intermarket," he said.
When news about the closure of the building society first reached him, Mr Chivura said he was shocked.
"I could not believe that all the money I had worked for was frozen for six months," he said.
Ms Mercy Chandida’s plight is even worse as her son is ill and most of the funds her husband sends her from the United Kingdom were deposited into her account with the building society.
"I cannot help but think that my son might actually die because I would have failed to raise money to buy his medication and the good food he requires. All this when we have money in the bank," she said.
Also worst affected are co-operatives which kept their money with the building society and hundreds of Zimbabweans living in the Diaspora who were depositing money with the hope of getting loans to buy houses.
Some employers are said to have advised their employees to close accounts with banks that are less than 10 years old and open new ones with the more established banks.
Already there are panic withdrawals in the banking sector as people withdraw their savings from banks which they perceived to be insecure.
"People are panicky and they have been coming in wishing to withdraw every cent they have saying their money will be safer at home.
"But can you blame anyone for safeguarding what they have worked for?" said a bank teller who spoke on condition of anonymity.
Intermarket Building Society, Intermarket Banking Corporation, Intermarket Discount House, Barbican Bank and Barbican Asset Management Company are the latest financial institutions to fall by the wayside after failing to follow regulations governing their operations.
They were placed under curatorship after the RBZ said it had found irregularities ranging from internal lending as was the case with Intermarket where management allegedly got loans from the company and failed to repay them, all at the expense of the depositors and investors.
The central bank also closed two Barbican subsidiaries in order to protect depositors, preserve the assets of the group and protect the financial system.
The lives of many account holders have not been the same since the institutions were placed under curatorship.
Note: This article first appeared in The Herald
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Wednesday, March 24, 2004