RBZ monitors seven troubled banks

via RBZ monitors seven troubled banks January 6, 2014 By Bernard Mpofu NewsDay

The Reserve Bank of Zimbabwe has placed seven troubled banks under surveillance amid concerns that the financial institutions could be facing insolvency problems, NewsDay can reveal.

The revelation comes a few weeks after former Finance minister Tendai Biti said liquidity constraints which hit the market during the just-ended festive season was triggered by under-capitalised financial institutions.

According to a confidential central bank document seen by this paper, as at September 2013, a total of 14 out of 21 operating banking institutions (excluding POSB), were in compliance with the December 2012 minimum capital requirements of $25 million.

“Seven banking institutions continue to be monitored under the Troubled and Insolvent Bank Policy. Trust Bank, Allied and MetBank continue to face mounting liquidity challenges,” reads the report dated November 15, 2013.

In 2012, the central bank announced an eight-fold increase in minimum capital requirements for commercial banks to $100 million.

The staggered capitalisation exercise is expected to be completed this year.

As at September 30, 2013, the seven banks — Allied ($11,98 million); Agribank ($16,62 million); Capital ($18 million); Kingdom ($7,94 million); Tetrad ($8,42 million); Trust ($2,55 million) and ZB Building Society ($16,02 million) had not complied with December 2012 threshold. On the contrary, CBZ, according to the documents, was the most capitalised bank with a core capital of $127,14 million followed by CABS on $64,62 million.

The troubled banking institutions’ total assets, total deposits and total loans amounted to $755,64 million, $456,24 million and $481,62 million as at September 2013, accounting for 11,43%, 12,09% and 12,75% of the banking sector’s total assets, total deposits and total loans respectively.

A total of 15 operating banks (excluding POSB), the central bank report further reads, recorded profits for the nine months ended September 2013.

“The majority of locally-owned banks recorded marginal profits or losses, while all foreign-owned banks posted profits. Generally, banks that recorded losses lacked critical mass to generate sufficient revenue to cover operating costs,” the report reads.

The apex bank said banking sector average ratio of non-performing loans to total loans increased to 15,64% during the period under review from 14,51% as at June 30, 2013. The central bank, however, said, if the seven troubled banks are excluded, the ratio falls to 9,07%. The central bank also warned that going forward, if the overall economic performance remains sluggish, the high levels of NPLs being currently recorded are likely to persist.

“Banking institutions worst affected by increasing NPLs such as Capital Bank, Kingdom Bank, Allied Bank and Tetrad have instituted various measures to manage the high NPLs such as curtailing lending activities and focusing on recovery efforts. The reduction in lending has, however, impacted on the earnings as reflected by the losses reported by these banks.”

Across the sector, Steward Bank experienced the highest operating loss of $31,31 million for the nine months to September weighed down by non-recurring operating expenditure incurred during the business model re-alignment. Impairment of legacy non-performing loans and advances, the report further showed, also affected the bank’s profitability.

The year, however, closed with some banks embarking on a flurry of capital-raising initiatives to meet the central bank thresholds. Last week Afrasia Zimbabwe Limited (formerly Kingdom Bank) announced that it had completed the phase of raising $20 million capital out of the targeted $100 required to fully capitalise the bank.

Banks have been gagged from disclosing their capital levels to the public following a directive from former RBZ governor Gideon Gono.

“Non-compliant banks are taking various measures to regularise their capital positions which are at different stages of implementation,” the document further reads.