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Foreign banks targeted for takeover

EIGHT foreign-controlled banks are targeted for indigenisation amid recommendations that the empowerment threshold for local investors in the banking sector should be reduced from the statutory 51% to 40%.

The banks are Standard Chartered, Barclays, Stanbic, MBCA, CABS, Premier, Metropolitan and BancABC. They are part of the 25 operating banking institutions in the country, comprising 15 commercial banks, five merchant banks, four building societies and one savings bank.

The empowerment regulations which came through a Statutory Instrument gazetted earlier this year, operationalised the Indigenisation and Economic Empowerment Act of April 2008. The legislation compels foreign-owned companies valued at US$500 000 or over to dispose of a controlling interest to black Zimbabweans within the next five years. Most balance sheets of local banking institutions are above this threshold.

If the 40% recommendation is adopted by government, six banking institutions would be targeted for empowerment — Barclays, MBCA, Stanbic, Standard Chartered and CABS — because local ownership is below the proposed threshold.

According to a report of the economic empowerment Financial Services Sectoral Committee in possession of the Zimbabwe Independent, the 14-member team has recommended to Empowerment minister Saviour Kasukuwere an incremental five-year re-orientation of banks’ shareholding to local investors.

The committee, one of the 13 sector-specific committees of the Indigenisation and Economic Empowerment Board (IEEB), was tasked by Kasukuwere to advise government on the appropriate net asset value threshold above which business in the sector is required to comply with empowerment regulations, and recommend sector specific indigenisation and economic empowerment strategies for consideration by the IEEB, among others.

It recommended that local shareholding in banks should be restricted to at least 40% because the “financial services sector is the most integrated sector in respect of the inter-linkages with an individual country’s economy and the global economy”.

“Accordingly, the jurisdictions have allowed entry of foreign-owned financial institutions to operate in their economies in order to allow their citizens to benefit from the diversity of products and services and technological advancements,” reads the report. “It is therefore recommended that indigenous ownership of banking institutions must be at least 40%.”

The re-orientation of the shareholding, the committee recommended, should commence next year with foreign-owned banks selling 20% stakes to locals and thereafter 5% annually until 2015.

The empowerment recommendations were made despite stiff resistance from the Bankers Association of Zimbabwe, which in its submissions to the committee had argued that the banking sector “was already indigenised” because 85% of banks were owned by locals.

Out of the targeted foreign-controlled banking institutions, which make up nearly 45,06% of the banking sector’s total assets, Stanchart (100% foreign), Barclays (68%), Stanbic (100%), MBCA (76%) and CABS (100%) have historically been foreign-owned.

However, Premier (54%) and Metropolitan (60%) banks —both formed by local shareholders — have become predominantly foreign-owned following the disposal of 70% and 60% shareholding, respectively to foreign shareholders in recapitalisation initiatives, the report said.

BancABC, according to the report, has 53% foreign shareholding by virtue of having its primary listing on the Botswana Stock Exchange. The entity has a secondary listing on the Zimbabwe Stock Exchange.

“In order to promote transparency and sound corporate governance in the implementation of the indigenisation regulations with regards the financial sector, it is recommended that financial institutions that have reached a certain balance sheet size threshold be required to list on the Zimbabwe Stock Exchange.”

The committee further advised government that public listing would also foster shareholder diversification and ongoing compliance with prescribed minimum capital requirements for financial institutions.

“It has been further observed that some banking institutions that were locally owned at inception, such as Premier Banking Corporation and Metropolitan Bank, have become foreign-owned following failure by local shareholders to inject additional capital,” the report further reads.

“Implementation of the proposed recommendations should not result in a weak financial sector reversing the gains from the liberalisation of the financial sector.” Such fear echoed Reserve Bank governor Gideon Gono’s warning to government earlier this year against implementing a “one-size fits all policy”.

On funding the empowerment programme — which most critics said would be a handicap to indigenisation because of lack of capital in Zimbabwe — the financial services committee proposed “various types of finance mechanisms” that include government budgetary allocations, introduction of levies and debt finance.

Banks, which made losses this year, are however expected to oppose the funding initiatives.

Nearly half of Zimbabwe’s financial services institutions made losses during the period ending June 30 2010. Treasury on the other hand is incapacitated.

Finance minister Tendai Biti is on record saying the US$200 million election slated for next year would be a strain to the fiscus. Treasury is also struggling to raise funds required to capitalise the central bank.

“These (indigenisation) funds can be accessed at concessional interest by indigenous people to finance capital projects or acquisition of stakes in foreign owned companies,” the committee advised. “The levy may be collected from all companies operating in Zimbabwe, including banking institutions, to contribute to the indigenisation fund. The levy can be a percentage of profit or a specific amount payable per annum for example US$500.”

 

Bernard Mpofu

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