eBusiness Weekly
Tawanda Musarurwa
Zimbabwe’s financial institutions are likely to find it difficult to meet the new minimum capital requirements as a result of the depreciation that occurred following the move by the country to de-dollarise, analysts have noted.
According to the Reserve Bank of Zimbabwe (RBZ) large indigenous commercial and foreign banks are now required to hold minimum capital equivalent to US$30 million, while other commercial banks, merchant banks and building societies now require the equivalent of US$20 million.
Observers say the depreciation of the local currency will make it difficult for banks to comply, especially as players in the sector are facing stiff competition from mobile telecommunications companies.
The Zimbabwe dollar is trading at around 17,3 to the United States dollar on the interbank market.
“This is a new headache for bank CEOs and shareholders given that most banks in Zimbabwe are still trying to recover from the scourge of value-destruction that emanated from the hyperinflationary environment,” said stockbrokers Morgan & Co.
The financial sector’s precarious standing is highlighted by an analysis by Imara Asset Management, which says the sector’s fundamentals are weak.
“First, the bulk of bank deposits are demand deposits. Second and more concerning is the level of bank capital and reserves which stood at $3,9 billion or just US$257 million.
“This compares with ‘other liabilities’ that have grown rapidly to $4,6 billion (US$300 million) which we have to assume are foreign exchange linked liabilities given their rapid rise since February 2019 when they represented 31 percent of bank capital. This is another scary number that we would like to look into in greater detail as it might be highlighting the possibility of a bank or banks failing.
“Put another way, banks need to maintain very high liquidity levels and restrain from lending medium and long term either to Government or the private sector. We noticed this at the end of last year when a number of the listed companies we speak to highlighted the difficulty of obtaining loans of any meaningful amount from their banks,” said Imara chief executive John Legat in a recent note.
With the rise and growth of mobile money services over the past two decades, especially Econet Wireless’s EcoCash, which has become almost ubiquitous, banks have been losing clients to these services.
Besides offering transacting services, players like EcoCash have expanded to include a broad array of financial services, including credit, insurance, and cross-border remittances.
The extent to which banks have been losing out to mobile money platforms are highlighted by the Postal and Telecommunications Regulatory Authority of Zimbabwe (Potraz)’s third quarter (2019) report which shows that as at the end of September 2019 Zimbabwe had total active mobile money subscriptions of 7,19 million people. For the third quarter of 2019 alone, mobile money had transacted $575,3 million.
