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Banks in equity capital deadline talks

UNDER-CAPITALISED banks are finalising negotiations with partners to meet the first phase of the minimum equity capital deadline set by the Reserve Bank of Zimbabwe (RBZ) next week.

REPORT BY OUR STAFF

Banks are supposed to have a minimum equity capital of US$25 million by December 31.

The minimum capital should reach US$50 million by June 30 and US$75 million by December 31 next year. By June 30 2014, commercial and merchant banks should have minimum equity capital of US$100 million.

While CBZ has already surpassed the June 2014 deadline and foreign banks such as Barclays, Standard Chartered and Stanbic have strong financial backing, the spotlight has been on small indigenous banks.

An executive with Trust Bank said on Friday that the institution was closer to getting injection from a foreign investor. The bank’s capital base stands at US$18 million.

In addition, the institution is at advanced stages of negotiations with other local institutions and is edging towards finalising a deal, the executive said.

ZABG board chairman Farai Mutamangira recently told Standardbusiness the bank, which will be renamed Allied Bank, is on course to meet the deadline.

NMB Holdings group chief executive officer James Mushore said he was not at liberty to divulge the modalities towards meeting the deadline, saying the bank would meet the required figure before the due date.

In a recent cautionary statement, NMB advised its shareholders “the company is engaged in negotiations which, if concluded successfully, will have a significant impact on its operations”.

In the financial year ended September 30 2012, Tetrad Holdings said it was confident that it would meet the minimum capital requirement for the bank within the stipulated timeframe.

The group said “serious discussions with a potential foreign investor are at an advanced stage”.

Ecobank Zimbabwe Limited [EZL] shareholders will inject US$15 million in the bank. Ecobank Group would inject US$10 million with the remainder coming from EZL local partner Brainworks Capital.

FBC Holdings and ZB said they would merge their commercial bank and building society units as part of efforts towards raising the required minimum capital.

The National Social Security Authority (NSSA) has engaged a consultant to determine how its banking associates would meet the requirements because the institution has no money to bail all of them out.

The authority presently holds 26,4% shareholding in FBC Holdings, 40% in FBC Building Society and 37,9% in ZB Bank.

TN bank has already surpassed this year’s capital requirements following the injection of US$20 million into the bank after Econet acquired a 45% stake in the bank. The bank’s executives can sleep comfortably after Econet announced plans to wholly own the bank.

Announcing the new capital thresholds in August, RBZ governor Gideon Gono said the measures were meant to build strong institutions that are able to underwrite more business.

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. Bank capital represents the net worth of a bank, that is, the difference between the value of the bank’s assets and its liabilities.

Gono said there was a positive correlation between capital levels and earnings performance.

Banking institutions with higher capital levels, such as CBZ Bank and Standard Chartered Bank revealed a demonstrable ability to generate revenues in excess of their operating costs.

The RBZ boss said banking institutions with low capital levels have higher incidence of reporting losses.

“A low capital base restricts a banking institution’s capacity to underwrite sufficient business and generate enough revenues to meet its operational costs,” Gono said.

“The higher the capital base, the greater the loss absorption capacity and therefore the resilience of the institution to adverse endogenous and exogenous shocks.”

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