Foreign investors line up new investment bank in Zimbabwe




Morgan Stanley headquarters August 20, 2013 in New York's Times Square. AFP PHOTO/Stan HONDA (Photo credit should read STAN HONDA/AFP/Getty Images)

A group of domestic and foreign investors has lodged an application with Zimbabwean authorities to roll out an investment bank, the first such institution since investment banks were toppled under the weight of a corporate governance scourge and the blazing crisis that has rocked markets since 2004.

Central bank governor John Mangudya told businessdigest this week that if the applicants meet the reserve Bank of Zimbabwe (RBZ)’s rigorous testing regime, they would create a financial institution that funds infrastructure development, entering a market currently dominated by the Infrastructure Development Bank of Zimbabwe.

This will also mark the first time a new bank comes onto the market since the National Building Society was established close to a decade ago.

Mangudya also corrected sentiments that a prolonged economic crisis has shifted the banking sector’s terrain, closing off space for new entrants scouring for opportunities on the Zimbabwean market.

“Our role is to create a competitive banking sector,” Mangudya told businessdigest.

“Consequently, licensing is an ongoing process in the areas identified by potential investors as profitable and consistent with permissible banking products under the Banking Act. The bank is currently considering one application for a banking license. The investment is a joint venture between foreign and local investors who are seeking to open an investment bank specialising in infrastructure development finance.”

He was not at liberty to disclose the identity of shareholders behind the investment bank, or hint on their prospects for success.

“The bank is also handling a number of applications for credit-only microfinance institutions by investors who are mostly local. The banking sector is highly competitive and there are no entry restrictions as long as applicants meet the minimum licensing requirements,” Mangudya said.

An investment bank acts as an intermediary in large and complex financial transactions.

It is usually involved when a startup company prepares for its launch of an initial public offering and when a corporation merges with a competitor.

It also plays the role of a broker or financial adviser for large institutional clients including pension funds.

Global investment banks include JPMorgan Chase, Goldman Sachs, Morgan Stanley, Citigroup, Bank of America, Credit Suisse and Deutsche Bank, the German giant.

Zimbabwe’s banking sector is currently made up of 13 commercial banks, five-building societies and one savings bank, with no investment and merchant banks.

According to the RBZ’s latest monetary policy statement released in August, a total of 176 credit-only microfinance institutions are also operating on the domestic financial landscape, in addition to eight deposit-taking microfinance institutions and two development finance institutions.

Mangudya spoke as a Finscope Survey, conducted a few years ago indicated that up to 70% of Zimbabwe’s adult population was financially excluded.

After the survey that was conducted in 2014, the rBZ embarked on an aggressive national financial inclusion strategy, which ran until 2020.

“The low access to formal banking services indicates that there is room for more players to cater for the banking needs of the financially excluded, particularly rural populations and informal businesses,” Mangudya said. “The bank continues to consider applications for licensing of banks and non-bank institutions seeking to meet the unfulfilled banking needs of marginalised populations. The robust economic recovery expected this year and beyond also needs appropriate financial support.

“In this context, the banking sector will need to shore up its support to these sectors and there is room for increased participation of financiers in these key growth sectors. prospective applicants will need to meet the rigorous licensing requirements of the bank and ensure ongoing compliance with banking laws and regulations in order to promote financial stability of the banking system.

“We are quite happy that the banking sector is currently well capitalised with sound asset quality as indicated by the low average non-performing loans ratio of around 0,3% which is comfortably within the desired international benchmark of less than 5%.”

Zimbabwe’s banking sector is emerging from a difficult decade characterised by bank failures and capital flight.

Over a dozen banks collapsed during the 2004-08 financial crisis, which saw listed behemoths like the influential Trust Bank Corporation drag entire empires to corporate graveyards after failing to stand the heat stemming out of executive delinquencies and the dire economic turbulence.

The heavy strain haunted big banks mostly operated by domestic bankers who came onto the scene from the mid-1990s.

Royal Bank, Tetrad Investment Bank, Genesis Investment Bank, Intermarket Bank Corporation Limited, Renaissance Financial Holdings Limited, Century Holdings Limited, Kingdom Financial Holdings Limited, Highveld Financial Services and Rapid Financial Holdings Limited were among the most notable assets that collapsed.

The RBZ moved to redeem the sector during the middle of the bloodbath in 2005, when it established the multi-trillion-dollar Zimbabwe Allied Banking Group out of the ashes of collapsing institutions.

However, ZABG also struggled to ride out the storms.

Now, six years after the last of the troubled banks fell, it appears domestic bankers are putting their act together, regrouping to restart their careers to wrest control of this key sector again, which remains dominated by big foreign players.

Reports indicated last week that another massive financial institution, capitalised to the tune of US$2,5 billion is already taking share.

An online publication that broke the story on Friday said the transaction, involving the merger of a string of diversified financial services firms, might result in the establishment of possibly Africa’s biggest bank with tentacles in a string of services and stretching out into the continent.

It sounds ironic that a big bank could step out of the worst economically performing African economy to rule the region.

But the publication said private sector players, working with the government, were determined to see the project come to fruition.

This could confirm Mangudya’s view that there are still pockets of opportunities for new entrants.

“The core of the project will involve merging leading financial institutions,” the publication said. “The new institution — which will have a footprint on the local and regional markets — will involve serious financial engineering and megabucks. It will have five major divisions: banking, insurance, investment, property and agriculture.

“The merger and subsequent consolidation process will be led by CBZ chairperson Marc Holtzman, an American international banker who was appointed on September 1, 2019 to preside over the biggest bank in the country. He will work with government and local bankers in the financial institutions involved.”

Source – the independent