* Loose lending leads to rising defaults
* Five banks have closed since June 2012
* Banks seek foreign shareholders to recapitalise
By MacDonald Dzirutwe
HARARE, June 25 A series of Zimbabwean-owned
banks are struggling to stay above water as loan defaults grow,
forcing lenders to turn to foreign investors if they can and
undermining President Robert Mugabe's black economic empowerment
With the Zimbabwean economy slowing sharply, some banks have
already closed, weighed down by indiscriminate lending and their
failure to raise new capital to cover loan losses.
Several local banks already have British or South African
owners and a few have found backers abroad such as former
Barclays boss Bob Diamond, who has bought into a regional lender
active in Zimbabwe. But life is tough for many of the rest.
"The ones without support from international banks are going
to struggle. You need a bit of a Big Daddy to sometimes help you
out of the deep end," said Abri Du Plessis, chief investment
officer at Cape Town-based Gryphon Asset Management.
After scrapping the worthless Zimbabwe dollar five years
ago, the economy recovered steadily from hyperinflation and a
decade in which GDP shrank by an estimated 40 percent.
However, activity is now slowing again. The World Bank has
cut its 2014 growth forecast to 2 percent, a third of the
government's projection. Whatever the reality, the International
Monetary Fund noted this week that "financial sector
vulnerabilities persist, stemming from the high levels of
non-performing loans, low capitalization and low liquidity".
Earlier this month, the Reserve Bank of Zimbabwe (RBZ) shut
Capital Bank after finding it was under-capitalised and saddled
with too many non-performing loans.
Capital is the fifth bank to fold in two years. Its major
shareholder, the National Social Security Authority, a
state-owned pension fund, asked the central bank to cancel
Capital's licence because it was unwilling to inject more
In many cases, bad lending is the result of mismanagement or
abuse of deposits, experts on the sector say.
Most banks have fallen victim to non-performing loans made
to their own shareholders and executives, said Anthony Hawkins,
a business professor at the University of Zimbabwe. "It is an
issue of corporate governance where you have shareholders
holding sway in the way the banks lend," he told Reuters.
The government is drafting a new banking law which would cap
individuals' shareholdings at 5 percent to curb their influence,
while making directors and executives liable for bank failures.
Of the 18 banks operating in Zimbabwe, five are owned by
British and South African institutions. Four banks hold 60
percent of the $4.7 billion deposits in the system.
RBZ Governor John Mangudya declined to comment for this
article although a senior central bank official said Zimbabwe's
banking sector was "safe and sound".
But Allied Bank, owned by Transport Minister Obert Mpofu,
this month put 92 percent of its staff on unpaid leave until
September to cut costs.
Mpofu said he was not involved in running Allied, while the
bank said it was trying to raise new capital and reduce its
non-performing loans, which stand at 69 percent of the total.
"The fundamental challenge for Allied Bank since inception
has been the issue of inadequate capitalisation. The bank is
implementing this voluntary unpaid leave scheme in an effort to
contain operational costs, staff costs included," the lender
said in emailed responses to questions.
Smaller banks such as Metbank are limiting cash withdrawals.
Metbank did not respond to requests for comment.
Total outstanding loans in the January-April period amounted
to $3.6 billion, RBZ data shows. Of these, 17 percent were
classified as non-performing, much higher than the southern
African regional average of 10 percent.
"For the small and aggressive banks, most of their loan
books are likely to be bloated with deals that barely passed the
banks' relaxed credit worthiness standards," said Ray Chipendo,
head of research at Johannesburg-based Emergent Research.
Dozens of Zimbabwean companies have collapsed this year due
to a lack of capital. "This is expected to worsen as more banks
realize losses on loans in a worsening macro-economic
environment," Inter-Horizon Securities said in a research note.
Zimbabwe's biggest banking group, CBZ Holdings,
reported a 43.7 percent decline in after-tax profit in the first
quarter of this year, weighed down by a growing number of loans
on which borrowers are not keeping up with interest or capital
CBZ said it could not comment as it was in a closed period
before publication of its half-year financial results.
Some banks are seeking to draw on foreign investors. Last
month Tetrad Investment Bank agreed to sell a majority stake to
Russia's Horizon Capital for $50 million. Tetrad said it would
comment only when the deal was completed.
Atlas Mara - an African investment vehicle set up
by Bob Diamond after he was forced out of the British lender in
2012 - paid $265 million in March to buy BancABC
, Zimbabwe's third largest bank in terms of deposits.
BancAbc has set up base in neighbouring Botswana for
expanding into southern Africa but its Zimbabwean operation
remains its largest. Chief executive Douglas Munatsi told
Reuters in April the bank had looked for new shareholders
because it could not fund growth from its own resources.
One of Zimbabwe's first black-owned banking groups, Kingdom,
was rescued last year by Mauritius bank AfrAsia, which snapped
up a majority stake and wrote off most non-performing loans.
Lynn Mukonoweshuro, chief executive of the renamed AfrAsia
Zimbabwe, said the deal had helped to improve the bank's capital
position and access to international financing.
"We have improved our risk management processes and
strengthened the board oversight on our lending policy, revamped
our internal policies and our focus is strictly on secured
lending," Mukonoweshuro said in response to Reuters questions.
The trend to seek shareholders abroad runs against Mugabe's
drive to force foreign-owned companies, including banks, to sell
majority shares to blacks.
Mugabe's ZANU-PF party has long tried to lift black
ownership in the economy to rectify the imbalances of the
British colonial era. Mugabe signed into law in 2008 the
Indigenisation and Economic Empowerment Act, which compels
foreign-owned firms to sell at least 51 percent shares to
Last month Finance Minister Patrick Chinamasa said Zimbabwe
would demand 100 percent local control of its minerals and land
but the policy remains surrounded by confusion.
The local units of British banks Barclays and
Standard Chartered, and South Africa's Standard Bank
and Nedbank, have managed to ride the liquidity
storm. These banks have lent more cautiously, with their
non-performing loans averaging 4.2 percent of the total.
Barclays Bank Zimbabwe had the lowest rate of 0.9
percent last year.
The RBZ has dragged its feet since 2009 on setting up an
inter-bank market, denying cash-strapped smaller lenders the
opportunity to borrow from bigger rivals with surplus money.
The RBZ official said the inter-bank market was expected to
start operating in July after getting $100 million from the
African Export-Import Bank in March.
(Additional reporting by Helen Nyambura-Mwaura in Johannesburg;
Editing by Stella Mapenzauswa and David Stamp)