THE country’s smaller banks are taking steps towards complying with the first phase of the new Reserve Bank of Zimbabwe (RBZ) minimum capital requirements deadline, allaying fears of the impending collapse of local institutions.
Report by Ndamu Sandu Last month, RBZ governor Gideon Gono hiked the minimum capital requirements for commercial and merchant banks to US$100 million by 2014 from US$12,5 million and US$10 million respectively, triggering an outcry from stakeholders that the move would lead to the closure of banks. The phased capitalisation approach should see banks complying with 25% of the prescribed minimum equity capital by December 31 this year. Banks have to comply with 50% of the prescribed minimum equity capital by June 30 2013 and attain 75% compliance by December 31 2013. Banks are supposed to fully comply with the threshold by June 30, 2014. With the big boys in the sector — CBZ, Standard Chartered, Barclays, Stanbic, BancABC, FBC and ZB -— having surpassed the deadline in the first phase of recapitalisation, the spotlight has been on other locally-owned banks. This had raised fears that some would fall by the wayside. TN Bank founder, Tawanda Nyambirai said the bank, with capital of US$32 million, had already sounded shareholders who have committed to raise an additional US$20 million. NMBZ group chief executive officer, James Mushore, told Standardbusiness they were putting together proposals to be submitted to RBZ on how it would be capital compliant. Asked whether the bank was considering a merger with another institution, Mushore said the proposed recapitalisation of the bank would be contained in a plan to be handed over to the central bank. Daniel Sackey, Sadc Cluster Head for Ecobank Group said Zimbabwe would raise US$10 million by December to comply with the capital requirements. Currently, the bank has capital of US$15 million and Sackey said shareholders were committed to raise additional capital. An executive with Trust said the bank had to look for US$4 million to comply with the first round of the capital threshold deadline. In a statement accompanying the interim financial results ZABG chief executive officer, Stephen Gwasira, said the bank had started working on initiatives aimed at raising more capital to meet the new minimum capital threshold. “The bank is certain that these efforts will be successful and that the desired objectives will be achieved,” Gwasira said. There are fears that hurdles would be encountered in the second phase of banks’ capitalisation requirements where they are supposed to have US$50 million by June 30 next year and analysts say mergers and acquisitions are imminent. An executive with a commercial bank said mergers and takeovers follow market forces on a willing buyer-willing seller basis notwithstanding that market forces are induced by the regulatory environment. The executive said it had taken ABSA, one of South Africa’s top banks, seven years to fuse all units into one single brand despite its formation in 1991 through the amalgamation of four banks. Former ZABG and CBZ executive, Andy Hodges, said there was need for consolidation in the banking sector to build stronger local institutions capable of competing with foreign counterparts.
“We currently have many indigenous banks which, if consolidated, would be able to take on the large foreign-owned institutions (in terms of market share),” Hodges said.
Nyambirai said merging with another entity would be considered if the bank found a suitable partner “who does not have many legacy issues”. Hodges said well-capitalised banks created a stable, financial sector that business and consumers could have confidence in, thereby instilling a culture of savings. “People only see failure not success and the number of banks that have been allegedly involved in scandals and curatorship does not instil confidence in the public,” he said.
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What bank capital represents
Bank capital represents the resources contributed by shareholders towards the establishment of the bank and its working capital requirements. It represents a permanent commitment by a bank’s shareholders. It also reflects the net worth of a bank, that is, the difference between the value of the bank’s assets and its liabilities. Capital is an essential element in banking as it serves as a buffer against losses and consequently ensures the going concern of a banking institution.
