A woman reads a notice of closure at the entrance of Capital Bank in central Harare. A series of Zimbabwean-owned banks are struggling to stay above water as loan defaults grow.
Aseries of Zimbabwean-owned banks are struggling to stay above water as loan defaults grow, forcing lenders to turn to foreign investors if they can and undermining President Robert Mugabe’s black economic empowerment drive.
With the Zimbabwean economy slowing sharply, some banks have already closed, weighed down by indiscriminate lending and their failure to raise new capital to cover loan losses.
Several local banks already have British or South African owners and a few have found backers abroad such as former Barclays boss Bob Diamond, who has bought into a regional lender active in Zimbabwe. But life is tough for many of the rest.
“The ones without support from international banks are going to struggle. You need a bit of a Big Daddy to sometimes help you out of the deep end,” said Abri Du Plessis, chief investment officer at Cape Town-based Gryphon Asset Management.
After scrapping the worthless Zimbabwe dollar five years ago, the economy recovered steadily from hyperinflation and a decade in which GDP shrank by an estimated 40%.
However, activity is now slowing again. The World Bank has cut its 2014 growth forecast to 2%, a third of the government’s projection. Whatever the reality, the International Monetary Fund noted this week that “financial sector vulnerabilities persist, stemming from the high levels of non-performing loans, low capitalisation and low liquidity”.
Earlier this month, the Reserve Bank of Zimbabwe (RBZ) shut Capital Bank after finding it was under-capitalised and saddled with too many non-performing loans.
Capital is the fifth bank to fold in two years. Its major shareholder, the National Social Security Authority, a state-owned pension fund, asked the central bank to cancel Capital’s licence because it was unwilling to inject more capital.
In many cases, bad lending is the result of mismanagement or abuse of deposits, experts on the sector say.
Most banks have fallen victim to non-performing loans made to their own shareholders and executives, said Anthony Hawkins, a business professor at the University of Zimbabwe. “It is an issue of corporate governance where you have shareholders holding sway in the way the banks lend,” he told Reuters. The government is drafting a new banking law which would cap individuals’ shareholdings at 5% to curb their influence, while making directors and executives liable for bank failures.
Of the 18 banks operating in Zimbabwe, five are owned by British and South African institutions. Four banks hold 60% of the $4.7bn deposits in the system.
RBZ Governor John Mangudya declined to comment for this article although a senior central bank official said Zimbabwe’s banking sector was “safe and sound”.
But Allied Bank, owned by Transport Minister Obert Mpofu, this month put 92% of its staff on unpaid leave until September to cut costs. Mpofu said he was not involved in running Allied, while the bank said it was trying to raise new capital and reduce its non-performing loans, which stand at 69% of the total.
“The fundamental challenge for Allied Bank since inception has been the issue of inadequate capitalisation. The bank is implementing this voluntary unpaid leave scheme in an effort to contain operational costs, staff costs included,” the lender said in emailed responses to questions.
Smaller banks such as Metbank are limiting cash withdrawals. Metbank did not respond to requests for comment.
Total outstanding loans in the January-April period amounted to $3.6bn, RBZ data shows. Of these, 17% were classified as non-performing, much higher than the southern African regional average of 10%.
“For the small and aggressive banks, most of their loan books are likely to be bloated with deals that barely passed the banks’ relaxed credit worthiness standards,” said Ray Chipendo, head of research at Johannesburg-based Emergent Research.
Dozens of Zimbabwean companies have collapsed this year due to a lack of capital. “This is expected to worsen as more banks realize losses on loans in a worsening macro-economic environment,” Inter-Horizon Securities said in a research note.
Zimbabwe’s biggest banking group, CBZ Holdings, reported a 43.7% decline in after-tax profit in the first quarter of this year, weighed down by a growing number of loans on which borrowers are not keeping up with interest or capital repayments.
CBZ said it could not comment as it was in a closed period before publication of its half-year financial results.