The restructuring, realignment and in some cases collapse of some entities in the financial service sector have remained a stark reminder that Zimbabwe’s economic woes are deepening after a five-year depression lull during the coalition government, analysts have said.
BY PAIDAMOYO MUZULU
A country’s state of the economy is reflected by the condition of its financial services sector.
Zimbabwe’s financial services sector is mainly composed of three main players — banks, insurance companies and pension funds.
Recent developments within these specific industries confirm that not only has the economy stagnated, but has in fact started spiraling into regression.
Reserve Bank of Zimbabwe governor John Mangudya told a parliamentary committee last week that the economy was on the recovery path although at least five banks were still struggling to raise the stipulated minimum capital requirement. Mangudya said the five institutions were small and their effect would not have an impact on the economy. ReNaissance Merchant Bank (Capital), Interfin, Genesis and Trust have been closed for one reason or the other, while Tetrad, Allied Bank, MetBank and AfrAsia Bank (formerly Kingdom) are struggling. TN Bank (Steward Bank) was snapped up by mobile conglomerate Econet.
Even banks that meet the central bank capitalisation thresholds (US$25 million) like Steward Bank are restructuring their operations in the current murky economic environment.
Steward Bank, which has 20 branches across the country, is shutting down eight during the course of the year, leaving more than 100 employees jobless.
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The bank said while it had control on internal factors, it did not have much control on external economic factors in the country. This sad development is not limited to the banking sector as the insurance industry is also struggling.
The Insurance and Pensions Fund Commission (Ipec) in their first quarter report also revealed that 13 out of the 25 registered insurance companies have not complied with the US$1,5 million minimum capital requirement.
In May, Ipec released a statement that confirmed fundamentals in the insurance sector had been eroded. Ipec has so far deregistered five insurance companies and suspended two, bringing to eight the number of insurance companies that have failed to comply with the minimum capital requirement.
The five deregistered companies are Agricultural Insurance Company, Jupiter Insurance, Suremed Health Insurance, SFG Insurance and Horizon Reinsurance. The trio of Altfin Insurance Company, Altfin Life Assurance and Navistar Insurance remain suspended from operating by Ipec.
Ipec commissioner Pupurayi Togarepi said the deregistered and suspended companies were failing to adhere to dictates of the insurance industry and were a reasonable danger to the investing public.
“Most of the suspended companies were failing to adhere to issues of good corporate governance, following insurance principles and some were collecting premiums without adequate capital to cover claims if they were made,” Togarepi said.
Togarepi further said some companies like Altfin became casualties of the collapse of their sister companies or related institutions. “Altfin was left exposed after the closure of Interfin Bank which held most of its investments,” he said.
This deepening economic malaise has not been limited to insurance companies and banks but has extended to the pension companies, making lives of pensioners more miserable as they receive paltry monthly payments that cannot cover their basic needs. Most pensions are paying US$60 or less to the lowest paid pensioners.
Some private pension schemes like Zesa Pensions Fund, Mining Industry Pension Funds and National Railways Pension Fund are failing to meet their obligations despite being defined benefit schemes. They are struggling to pay their pensioners. Zesa Pensions Fund last month held its annual general meeting at Munyati where, among other things, they discussed a US$108 million actuarial deficit. This deficit means the fund cannot review payouts in the interim and the pensioners will continue to collect US$20 for the lowest and US$200 for the highest grade.
These pension funds have impressive property portfolios scattered across the country but the returns remain sub-optimum in the face of a depressed economy. The properties’ occupation rates are low and more often than not have to review the rentals downwards.
Old Mutual has remained an exception as revealed by its most recent financial results. Last week it declared a US$10 million dividend to shareholders.
Zimbabwe National Chamber of Commerce economist Kipson Gundani said the financial services sector’s problems should not be looked at in isolation of the broader micro and macro-economic environment.
“The development can be explained in many ways but primarily, it’s about the country’s risk profile which affects investment inflows. “The financial service sector’s unhealthy developments paint a picture that all is not good in the economy,” Gundani said.
On the insurance sector, Gundani said it was sophisticated and relied on the good performance of other sectors.
“Insurance is a delicate sector that relies on the productive sectors and if these sectors are not performing, the insurance companies take a knock because they are reflective of the people’s wealth and security,” he said.
Gundani concurred with Togarepi, that some of the insurance companies’ fate were tied to their specific management and good corporate governance.
Zimbabwe’s economic outlook remains gloomy after the World Bank revised downwards the country’s economic growth rate to 3%from 4,2%.
The country’s economic policy, the Zimbabwe Agenda for Sustainable Socio-Economic Transformation (Zim Asset) is yet to be fully implemented eight months after being launched following a new government post, the July 31 general election.
