Zim banks may merge as central bank cracks whip

HARARE- Zimbabwe’s banks could be forced to merge while others might be swallowed up by bigger houses to survive new central bank capital requirements and a crackdown on speculative behaviour in the sector, analysts said.

The revised capital requirements are intended to weed out weaker banks which the central banks says pose a danger to the health of the country’s financial system. The turmoil in the banking world comes as Zimbabwe battles its worst economic crisis since independence in 1980, with chronic shortages of food, foreign currency, and fuel along with rampaging inflation and record unemployment.As part of a campaign to rein in wayward banks, the central Reserve Bank of Zimbabwe this month raised banks’ capital requirements by up to 19 times and set a September 30 deadline for compliance — a move analysts say will hurt some small banks and halt their expansion plans.Analysts said the step would leave the banks with little funds for speculation and force some to liquidate foreign currency, properties, and cars which are held as a hedge against rampant inflation.”There are a number of banks which are financially weak who will find it difficult to raise that kind of capital,” said economist Tony Hawkins of the University of Zimbabwe.”We are definitely going to see a restructuring of the banking sector.In other words there will be mergers one way or the other or some of them will be taken over by bigger ones,” he told Reuters.Commercial banks must now deposit Z$10 billion with the central bank, up from Z$500 million, in order to be licensed.Merchant banks and discount houses need Z$7,5 billion and Z$5 billion respectively compared to Z$300 million and Z$200 million last year.Local media have reported that at least three commercial banks are in serious financial trouble and might fail to meet the new capital requirements.The African state has 14 commercial banks and six merchant banks, most of which were formed after the government liberalised the financial sector in the 1990s.They have rapidly grown in contrast to the shrinking economy.”We might see the banking sector start to shrink with the rest of the economy now,” Hawkins said.But analysts say the central bank’s crackdown was long-overdue in a sector which had operated without due regulation over the past decade.”This is a warning to the sector by authorities that they are cleaning up the whole place,” said Zimbabwe National Chamber of Commerce economist Douglas Mugwambi.Earlier this month two directors of asset management firm ENG were hauled before the courts on fraud charges involving billions of dollars of investor funds.Another firm, Century Discount House, had its licence revoked because the central bank found it financially unsound.Analysts said foreign-owned banks like Britain’s Standard Chartered, Barclays, South Africa’s Standard Bank and a handful of local giants could move in to take over some of the operations of troubled banks.”The international banks could get in and pick up some pieces but only at a very limited scale as they have been reducing their operations,” an economist at a local bank told Reuters.He was referring to how some foreign firms have shut down branches outside major cities over the past year.-Nampa-ReutersThe turmoil in the banking world comes as Zimbabwe battles its worst economic crisis since independence in 1980, with chronic shortages of food, foreign currency, and fuel along with rampaging inflation and record unemployment. As part of a campaign to rein in wayward banks, the central Reserve Bank of Zimbabwe this month raised banks’ capital requirements by up to 19 times and set a September 30 deadline for compliance — a move analysts say will hurt some small banks and halt their expansion plans. Analysts said the step would leave the banks with little funds for speculation and force some to liquidate foreign currency, properties, and cars which are held as a hedge against rampant inflation. “There are a number of banks which are financially weak who will find it difficult to raise that kind of capital,” said economist Tony Hawkins of the University of Zimbabwe. “We are definitely going to see a restructuring of the banking sector. In other words there will be mergers one way or the other or some of them will be taken over by bigger ones,” he told Reuters. Commercial banks must now deposit Z$10 billion with the central bank, up from Z$500 million, in order to be licensed. Merchant banks and discount houses need Z$7,5 billion and Z$5 billion respectively compared to Z$300 million and Z$200 million last year. Local media have reported that at least three commercial banks are in serious financial trouble and might fail to meet the new capital requirements. The African state has 14 commercial banks and six merchant banks, most of which were formed after the government liberalised the financial sector in the 1990s. They have rapidly grown in contrast to the shrinking economy. “We might see the banking sector start to shrink with the rest of the economy now,” Hawkins said. But analysts say the central bank’s crackdown was long-overdue in a sector which had operated without due regulation over the past decade. “This is a warning to the sector by authorities that they are cleaning up the whole place,” said Zimbabwe National Chamber of Commerce economist Douglas Mugwambi. Earlier this month two directors of asset management firm ENG were hauled before the courts on fraud charges involving billions of dollars of investor funds. Another firm, Century Discount House, had its licence revoked because the central bank found it financially unsound. Analysts said foreign-owned banks like Britain’s Standard Chartered, Barclays, South Africa’s Standard Bank and a handful of local giants could move in to take over some of the operations of troubled banks. “The international banks could get in and pick up some pieces but only at a very limited scale as they have been reducing their operations,” an economist at a local bank told Reuters. He was referring to how some foreign firms have shut down branches outside major cities over the past year.-Nampa-Reuters