Zimbabwe bank closures shake fragile sector
The closure of Zimbabwe’s Interfin Banking Corporation and Genesis
Investment Bank due to chronic liquidity problems has shaken the country’s
fragile banking sector
DUMISANI MULEYA
Published: 2012/06/13 06:35:42 AM
THE closure of Zimbabwe’s Interfin Banking Corporation and Genesis
Investment Bank due to chronic liquidity problems has shaken the country’s
fragile banking sector, fuelling fears of contagion and systemic risks.
After failing to save the banks from collapse, the Reserve Bank closed
Interfin — which had a negative core capital of $93m — and Genesis bank on
Monday. The latest crisis could further shake the $3bn sector and undermine
economic recovery efforts. The situation is made worse by the controversial
indigenisation policy which demands that foreign-owned companies, including
banks, surrender 51% of their shareholding to locals.
After initially targeting the mining sector, the campaign, spearheaded by
President Robert Mugabe’s Zanu (PF) party and his Indigenisation and
Empowerment Minister Saviour Kasukuwere, has shifted to foreign-owned banks.
Mr Kasukuwere has clashed with Reserve Bank governor Gideon Gono, who has
warned against destabilising the banking sector and threatening the economic
recovery. Zimbabwe has 26 banking houses, and Mr Kasukuwere has demanded
they each reapply for new licences.
Mr Gono will brief the central bank board and Finance Minister Tendai Biti
today on the closures.
The closure of Interfin and Genesis followed the shutting down of
ReNaissance Merchant Bank last year, whose collapse was blamed on a lack of
liquidity, poor corporate governance, looting and brazen theft by its
executives, reports said.
Genesis was closed following its failure to meet the $12,5m minimum capital
requirement, despite talks with more than 20 potential inventors over the
past three years. The bank, which had a negative core capital of $3,2m, is
now in liquidation.
Interfin, meanwhile, was closed and placed under the management of prominent
curator Peter Bailey for six months. The bank’s closure was a result of low
capitalisation, concentrated shareholding and abuse of corporate structures,
high levels of non-performing insider-and related-party exposure, a chronic
liquidity position and income generation challenges. It was also beset by
incompetence and violation of banking laws.
The collapse of the two banks has raised the spectre of bankruptcies, which
last hit Zimbabwe’s banking system in 2004 and destabilised an economy
already in a meltdown and engulfed by hyperinflation amid a political
crisis.
Local banking experts and the International Monetary Fund have warned since
2009 that unless urgent measures were taken to recapitalise, merge or close
struggling banks there would be bankruptcies across the sector.
Zimbabwe’s 26 banking institutions include 17 commercial banks, four
merchant banks, four building societies and one savings bank. Of these, only
foreign-owned banks, British-owned Barclays and Standard Chartered Bank,
Standard Bank ’s subsidiary Stanbic, Nedbank ’s MBCA, Togo-based Ecobank,
and CABS, a subsidiary of Old Mutual , are strong, with a combined deposit
base of more than $1bn.
Local banks are struggling due to poor economic performance, tight liquidity
conditions, limited lines of credit and low savings.
Though locals hold a majority stake in CBZ Bank, Zimbabwe’s biggest bank by
balance sheet size, it is partly owned by Absa .