A club of failures or beacon of hope?
This month will mark the official opening of what
has been dubbed the largest locally-owned commercial
banking firm in Zimbabwe, the Zimbabwe
Allied Banking Group (ZABG). The new bank will
pit the government and other local shareholders against three
international banks that have been accused of drawing huge
profits at the expense of Zimbabweans.
The three - Stanbic Africa, Standard Chartered and Barclays
– happen to be the major banks operating in Zimbabwe. They
reported an after-tax cost profit of Z$501.4bn in the six months
to June 2004, compared with Z$24.961bn in the same period in
2003. This is an overall increase of nearly 2000% on the previous
The formation of the ZABG marks the commencement of another
era in the Zimbabwean banking sector. Some of the banks
collapsed into this umbrella institution include Barbican, Royal
Bank, Intermarket Discount House, Trust Bank, Time Bank,
Intermarket Building Society and Intermarket
Two financial institutions, First National Building Society
and Rapid Discount House, have slipped into liquidation.
The new entity will have to convince Zimbabweans, who’ve
already suffered at the hands of an unstable local banking sector,
to deposit their hard-earned cash into the new bank. Already, Dr
Gideon Gono, the Governor of the Reserve Bank of Zimbabwe
(RBZ), is hard-pressed to convince sceptical Zimbabweans that
“ZABG is built upon good corporate governance”, in an apparent
reference to imprudent business practices that have been set
by other locally owned and managed banks.
The RBZ says the establishment of ZABG preserved the
localisation of the financial sector, but some analysts are not
convinced. “The jury is still out on the ZABG. There is a real
danger that the bank will drag on and on without attracting new
depositors and banking on government,” said one independent
analyst in Zimbabwe.
have proclaimed the move to merge the
collapsed banks under one umbrella bank as arguably the best
thing that could have happened to Zimbabwe’s banking sector
in recent years, although sceptics question the viability of the
“Because of its background, it is being viewed as a club of
failures, an association of the weak. Depositors have became
wary of who they trust their money with. That caution is likely
to blind the depositor to any attempts to convince them that the
ZABG is an entirely new bank, that whoever burnt them in the
past cannot burn them any more,” said one analyst.
It would appear that Dr Gono has been systematically preparing
for the consolidation of the country’s banking sector since
taking offi ce. Last year, the RBZ triggered a run on banks by
setting a September deadline for all fi nancial institutions to
declare their capital reserves and show they have enough liquidity
to continue operating. Dr Gono eased the pain by
that Central bank offi cials would work with shareholders,
directors and managers to keep troubled institutions afl oat by
Recently, he told a breakfast meeting debating the central
bank’s third quarter monetary policy statement in Harare that
ZABG would be “three or four times bigger” than the individual
existing banks in Zimbabwe. It has the mandate of spearheading
long-term capital projects such as infrastructure development.
The ZABG has been capitalised to the tune of Z$2 trillion.
The figure has raised alarm amongst some analysts, who argue
that it would place infl ationary pressures on the economy. At the
end of 2004, Zimbabwe’s infl ation rate was stubbornly sitting
above 200%, although this was an improvement from the alltime
high of 622% at the beginning of the same year.
The ZABG is seen as the first major step towards strengthening
the financial sector, which suffered from
instability and scandals for most of 2004. Banks still on the
Troubled Bank Fund (TBF) are likely to be roped in into the
quasi-government fi nancial group later in the year.
The TBF is a facility created by the RBZ as bridging fi nance
for institutions that had been forced to borrow from the central
bank to stay afl oat. The institutions were given a deadline of November
30 2004 to repay the loans, failure of which would result
in the loans being converted to equity.
The central bank created the Allied Financial Services (AFS),
a special purpose vehicle which holds equity in the troubled
banks. AFS is jointly owned by government, by virtue of the
central bank’s injection of funds into the troubled banks, creditors
and depositors whose savings have been converted into
Under ZABG, single account holders with a deposit equalling or less than Z$5m were refunded, while those holding deposits beyond this fi gure along with
creditors and government became automatic shareholders. This would be done via a debt to equity conversion transaction. Government would have to
shed off its entire shareholding by 2007.
Initially, the bank will be managed by a management board of
turnaround and integration experts supported by a competent
management board of directors. Perhaps, the bank will be better
positioned targeting the unbanked in the rural and oulying
areas of the country. Already, Dr Gono hinted in that direction
in his third quarter monetary policy statement, saying that “the
majority of banking institutions are primarily concentrated in
a few urban areas, with limited and in most cases, non-existent
representation across the entirety of the country’s main centres
of economic activity”.
Analysts and ordinary Zimbabweans agree that this year will
determine whether ZABG is a bankable project initiated by the
central bank. While it has given fresh hope to a collapsing, yet
sector of the economy, the bank will have to do a lot more
to gain public confi dence. It will need aggressive marketing
campaigns and solid management to convince Zimbabweans
to move their funds from largely foreign owned banks with
unrivalled experience in operating in a diffi cult market such
as Zimbabwe, to an entity that some have dubbed “the club of
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