SEVERAL banks have opened the new year under severe stress amid reports of numerous branch closures and job cuts reportedly triggered by the near full-dollarisation of the bartered economy.
Information gathered revealed that at least five banking institutions have scaled down operations in frantic efforts to save their institutions from the unprecedented economic meltdown.
The crisis in the financial sector has, according to bank officials, hit most leasing and loan finance employees hard.
Banking sources told businessdigest that Barclays Bank has retrenched workers while Zimbabwe Allied Banking Group (ZABG) has suspended its casual workers. FBC Bank, sources said, could soon close most of its branches outside Harare’s central business district. Â
ZB Bank has reportedly stopped ferrying workers to and from work after citing viability problems.
“This could be the most challenging year for the financial sector,” said a senior bank official. “There are no savings in local currency and foreign exchange is scarce.
Introducing policy on complete dollarisation of the economy could save banks in the short term. This will not disfranchise government as some critics would argue – taxes would be paid in forex.”
Apart from the viability problems, morale at most banks is low after the financial institutions failed to pay workers in hard currency.
The sources said banking institutions could fail to survive the current “over banked” environment that has rendered local financial institutions incapable of financing the foreign currency starved manufacturing sector. Â
Independent statistics indicated that bank assets value continue to decline in real terms, sliding to an estimated US$50 million last year from US$300 million in 2007.
This development, according to a report compiled by an independent financial company KM Financial Solutions, could discourage exporting companies from increasing export growth resulting in a sharp decline in foreign currency reserves.
“A number of exporting companies are currently unable to access funds from their foreign currency accounts within time scales they require.
This would in turn result in low confidence in the banking system,” reads the report. With no lines of credit in place, virtually all banks would fail to finance operations of blue chip companies like Econet whose operations demand significant amounts of hard currency.
With inflation now estimated at over a billion percent, bank deposits largely from companies and individuals will continue to diminish, relegating the local currency to worthlessness.
Bankers Association President John Mangudya confirmed that most banks were struggling to operate although would not disclose financial institutions currently in trouble.
“I cannot comment on behalf on other banks,” Mangudya said. “I am still trying to get the finer details of the banking sector but like any other sector, banks are going through a difficult moment.
The panacea to Zimbabwe’s problems is production. We are in a survival mode that is characterised by cost containment.”
These problems, according to analysts, could restrict new players from joining the financial sector. Â
Last year, TN Bank and Tetrad shelved plans to open a commercial and merchant bank respectively over unclear reasons.
The Reserve Bank stipulated at least US$12,5 million (commercial banks) and US$10 million (merchant banks) in hard currency for statutory capital requirements.
The widespread circulation of foreign currency in the market has eroded confidence in the banking sector and if measures are not taken to correct to the situation, the banking sector is headed for collapse in the not too distant future.
This comes after revelations from the banking sector that the Reserve Bank had turned down an application by most banks to charge for services such as chequebook fees and account operational costs in foreign currency.
The move is however likely to sound the death knell on the banking sector as it would be difficult to sustain operations.
“We applied to charge for some services in foreign currency as suppliers of cheque books, stationery and suppliers of services to banks are charging in forex but the Reserve bank turned down the application,” said one bank official speaking on condition of anonymity.
John Robertson, a local economist says the small banks are already feeling the pinch as they try to survive the “sick” economic climate and are unlikely to survive.
He predicted that only the big banks would survive whilst the new ones will be forced into mergers, subsequently leading to the closure of some bank branches.
“The big banks will not be affected that much because they have other revenue bases. Some of them own properties in and outside the country so they still have the revenues even when people stop depositing their money, Robertson said.
Eric Bloch, another local economist says despite the unofficial dollarisation of the economy, the banking sector is going to pull through because only a few companies have access to the foreign currency and the majority of them still deposit their local currency into the banks.
“The banks are still active because most companies don’t have access to foreign currency, so they are still using the banks,” said Bloch.
He also predicted that the government would be forced to dollarise the economy “soon”, and that would give a lifeline to the banks as they also join the foreign currency craze.
“It’s inevitable. The government has no choice but to dollarise the economy and it won’t be long before we see rands and United States dollars in the banks,” Bloch said. “The Minister of Health and Child Welfare recently announced that all state hospitals and clinics should accept foreign currency as a way of payment and that’s legitimizing dollarisation”.
Most of Zimbabwe’s financial transactions, from multi-national transactions down to small transactions in the market are being carried out in the US dollar, the rand or the pula.
BY BERNARD MPOFU AND HENRY MHARA