Last June, Blessing Mudavanhu (BM) was appointed to head one of the country’s largest companies, CBZ Holdings. The group, which operates a bank, an insurance unit, and a property concern, among a number of business units, boasts of an asset base of US$2,44 billion, making it one of the most powerful institutions in Zimbabwe. Our Business Reporter Fidelity Mhlanga (FM) spoke to Mudavanhu to get insight into the company’s operations and future prospects of the business.
FM: Your appointment came at a very interesting time in terms of developments in the economy. Let us talk about your journey since then. How has the experience been?
BM: I was appointed in June last year, it’s now a little over a year. That was before the elections. It was also before October when currencies moved. A very interesting time because when I joined the bank the economy was a little bit stable. Certainly during that time there were no significant shortages of foreign currency. Even inflation at the time was single-digit. Now it is double-digit. So that has really put pressure on us and for me in particular as the guy who is running the Holdings in terms of recalibrating the strategy. So nonetheless, it’s a good experience, as the challenges also come with an experience.
FM: Is this what you expected?
BM: I did not expect that things could change as quickly as they did.
FM: What is your take on the state of corporate Zimbabwe?
BM: The corporate sector, which is the mainstream of the economy, is constrained because of inability to raise resources to recapitalise and improve the operational platform. That is the biggest challenge. Think about let’s say Sable Chemicals, Ziscosteel, there is need for a lot of capital injection to recapitalise the operations. So that is really a challenge. A lot of companies are operating with substandard and inefficient equipment. And what that does is it increases the cost of business.
FM: What is your assessment of the monetary developments in the country?
BM: I think I can speak, generally in terms of constraints around foreign currency, which is the biggest problem for us. I mean it’s anyone’s guess, but I think 80% of the goods are imported from South Africa. When we look at that, what we think of as inflation is really currency fluctuations, but it’s not really fluctuation, but it’s really currency going one way. As our local currency depreciates, prices also go up because most of these goods are being paid for using foreign currency. So that is translating into a very high inflationary environment. So my assessment is, it’s a very difficult environment and for us as employers, the biggest challenge is to look at what we pay staff, whether it’s enough for them to come to work the next day. It creates a vicious cycle when one is working, but is thinking where am I going to find fuel for the next day. Once productivity is low, the cycle continues.
FM: How best do you think we can deal with this situation?
BM: We need to produce and need foreign currency to recapitalise our businesses. For us, my opinion is that, for us as a banker, what we can do is look for external lines of credit. That is the role we play as bankers to be able to create a better environment for our country and seek external resources and channel them to the economy.
FM: The group has a long history from its incorporation to listing and rebranding up to the present day. What is the next chapter for CBZ?
BM: I think we are at a point where we need to rebrand again, because all these brands need to be refreshed often. But obviously timing is going to be key. The next step really at least I would like to see in my tenure maybe for the next 3 to 5 years is to diversify business. As it is right now, CBZ Holdings is still largely a bank. We have a properties business which is still very small, so is insurance and asset management. The objective is to create a well-diversified financial services platform. What we mean by that is if you look at the bank, it should at least command 10% of the market share, you can tick and say the bank is already there. We are already at least 16% market share. Then you go to insurance business, we want them to be at least 10%, same thing for properties and asset management. Once you have ticked those boxes, then you are closer to achieving that diversification. Then the next thing as part of that diversification is to look at regional assets that can also be under the CBZ portfolio, such that you are not only diversified in income stream, but we are also in terms of geographical location. We would love to diversify in all our lines of businesses, if there is something that looks good in Tanzania, like synergies with our bank we would be happy to look at it. But then, we would have diversified regionally. Imagine if CBZ had already achieved that diversification, all these currency issues that we are talking about would be less of an issue because then we would have been are deriving from other lines of income with currencies that we could actually trade.
FM: There is talk that the market has lost appetite for loans denominated in RTGS$. Is this the correct position?
BM: It’s not true, there is high appetite for loans. The challenge we have in the market is good quality clients. And the quality of the clientele is also related to the economy. So the economy we live in unfortunately has also compromised a lot of those good quality corporates. But the appetite for loans is always there. We have high appetite for loans. We are busy looking for good quality clients. We do have a lot of RTGS$ and we want that money to find a home.
For a bank it’s not profitable to sit with cash. We also have appetite for USD loans, but we do not have USD resources.
FM: How are you dealing with non-performing loans (NPLs)?
BM: Part of the challenge is that our underwriting has to be recalibrated to the realities of the economy. So first thing is that we do adequate credit assessment. Historically, we as CBZ have had very high NPLS and one way we are addressing that is by improving how we manage those once they have been granted. Our target in the short to medium-term is a NPL rate of below 10%. In the long-term we can stabilise at 5%.
FM: You continue to have a great deal of exposure to sovereign paper in the form of treasury bills (TBs). What has informed this preference?
BM: There is a relationship between the size of our treasury bills and the size of our loan book and a lot of it has been repayments of our loans. In the end, sitting at the significantly higher treasury bills portfolio which is fine because it is an interest-earning asset, but what it means is that we also have a significant higher interest rate risk. So we are also looking at ways in which we can manage risks implied by having a big TB portfolio because it’s less a credit risk issue. We don’t think the central bank will default. We also think they are our regulator, so if they default, it will have a wider consequence in that regard. To that extent, we believe the central bank is a good quality client, but what we worry about is a high inflationary environment.
FM: Can you give us a breakdown of your current stock of TBs and when they fall due.
BM: I would have those details but certainly in our annual reports. But it is a high exposure. They range from 1 to 10 years. But it’s a performing asset, it earns interest and gets paid on time.
FM: In a recent report, the International Monetary Fund (IMF) warned that following the currency conversion, banks holding long-maturity, fixed-interest rate TBs could also face exposure to potential maturity mismatch relative to their liabilities. Is this a concern for you?
BM: Banking is about managing mismatches. So there is always that mismatch, I don’t know the specifics. But if the IMF is talking about mismatch, that’s what banking is all about. You borrow money and lend to someone for 30 years and you can come and take money tomorrow. So it’s a mismatch business. I think our treasury guys are able to manage the mismatch.
FM: In 2017 you were slapped with a US$3,8 billion fine by the United States Treasury’s Office of Foreign Assets Control (Ofac) for handling thousands of financial transactions on behalf of ZB Bank. How would you describe the nature of your relationship with Ofac?
BM: I am not sure whether we were fined or it was an intention to fine, so you will be aware that this is something we have disclosed that we have provided our arguments on why we should not be fined. And this is something still sitting with our lawyers internally and externally in Washington DC to seek resolution around this issue. The CBZ itself is not on the sanctions list. There was an intention to fine on issues around facilitating transactions for sanctioned entities. We are confident the issue will be resolved to our satisfaction.