Predators gun for Zimbabwe’s banks

via Predators gun for Zim banks | The Financial Gazette – Zimbabwe News 1 May 2014

FOLLOWING a decade of economic turmoil precipitated by boiling political and economic temperatures, Zimbabwe’s banking sector is now prey to international capital predators snooping for cheap assets in the beleaguered economy. Banks have been rattled by a devastating turbulence that left several of them belly up, or under curatorship, with global lenders freezing lines of credit.

But even in these trying times, Zimbabwe’s banking industry has continued to attract foreign investor interest, and analysts say it is common knowledge among the international community that once the crisis that has gripped the market is arrested, the country could have one of the region’s strongest banking sectors. Potential investors had taken flight from the sector after a hostile empowerment law that gives the State power to expropriate substantial chunks of foreign investors’ assets was promulgated in 2008, triggering a liquidity crunch that has been threatening most banking institutions.

The hard-hitting turbulence persisted even after liberalisation in 2009 and has forced government to reconsider its hard-line stance against foreign investment in a dramatic climb down reinforced by Finance Minister Patrick Chinamasa. While the sector remains in turmoil, the climb down has boosted investor confidence in the frail financial system, opening the sector to significant funding through equity and lines of credit from global and regional interests.

Chinamasa described the controversial empowerment policy as “nonsense” in yet another indication of the extent to which even radicals have been shaken by the blazing economic crisis. They see a relaxation of the militant stance as the only window out. Mauritian-headquartered AfrAsia Bank Limited announced plans to roll out a further US$20 million into the troubled AfraSia Kingdom Limited in Zimbabwe, taking its overall investment to US$30 million since 2009. The injection pushed the Mauritians’ shareholding to 62,5 percent from about 35 percent, against a 49 percent maximum prescribed by the empowerment law.

“I am very aware that with each increased injection of capital by foreign banks that will lead to dilution of the local participation,” said Chinamasa. “Where I stand right now I am quite comfortable with that dilution because it increases the volume of credit to the productive sector at a time when our own people have no capacity to buy the equity,” he told reporters.

The deal was followed by an announcement by Tetrad Holdings Limited on Monday that a deal had been signed with a foreign investor to roll in funding for its troubled investment banking unit. Tetrad did not disclose the identity of the investors but people familiar with the transaction said Russian investors had been talking to the Zimbabwean group.

“The board of Tetrad Holdings Limited is pleased to advise that an agreement of the sale of a controlling stake in its subsidiary company, Tetrad Investment Bank Limited, has been reached,” the financial institution said in a shareholder notice. Allied Bank has also concluded a deal in which a Mauritian investor poured US$30 million in fresh equity to stabilise the bank that was on the verge of collapse. The deals were among many recent transactions that could drive Zimbabwe ahead of its low rankings in the region.

But economists have warned that the extent to which banks had been destroyed would mean that more effort would be required for real recovery. “Recovery is going to be very slow,” says economist, Witness Chinyama. Better known for the decade-long economic crisis that ended in 2009, Zimbabwe has seen its once prosperous banks fall from the top African leagues.

But it is the only sector that has registered a steady flow of investment since 2009, with close to US$1 billion having been invested. Among the first foreign banks to target Zimbabwe in 2009 was Ecobank, Africa’s largest banking group by assets. Ecobank pounced on Premier Finance Group. The deal has reshaped it into an enterprise of significant clout. By August last year, Ecobank had injected over US$43 million in Zimbabwe.

MBCA secured US$75 million from its South African majority shareholder, Nedbank Group, which was earmarked for lines of credit to industry. The most fierce government critics agree that the rate of external support has been significant but funding has been plunging into a bottomless pit. “Banks have been able to persuade investors that there are prospects for recovery,” says John Robertson a leading economist. They have said as soon as we make the right policy changes we will enjoy growth as well.”

“It is a bit of a gamble,” he says, “Most of them know that there will be no quick returns”. Robertson says Chinamasa must put words into action. “Investors will not be impressed by just climbing down because that law can still be applied,” he says.

Last year, NMB Holdings secured US$16 million from foreign banks that took over 26,97 percent shareholding in the group. In 2011, Africa Export and Import Bank injected US$50 million into BancABC, while another Pan African fund, Shelter Afrique channelled US$7 million into the same bank. NMB has also secured an additional US$10 million loan from France.

Mortgage lender, CABS Building Society sealed another US$10 million loan from Proparco, the French firm, while BEDIA of Sudan has injected over US$5 million for small enterprises. The highlight of global investors’ repositioning in Zimbabwe was when the Bob Diamond-led investment firm, Atlas Mara announced its US$210 million investment into BancABC last month. Diamond, in partnership with 32-year-old Ugandan billionaire, Ashish Thakkar, is targeting African countries for Atlas Mara’s growth, and in a massive confidence boost for Harare, his choice for BancABC, in a continent of 54 countries sent the signals that Zimbabwe desperately needs.

In November, China Export-Import Bank signed a deal to lend US$319,5 million to finance the expansion of Zimbabwe’s major hydro-power station, while the Development Bank of Southern Africa has been bankrolling the US$206 million Plumtree-Mutare road rehabilitation project. Another Chinese financial institution, China Development Bank, has offered Zimbabwe a US$30 million line of credit to assist in the rebuilding of the agriculture sector. Political temperatures have cooled down.

Robertson says investors “are repositioning themselves other than coming in late after recovery”. In many ways, government has realised that without embracing capital the status quo remains threatened.

“The political environment is improving, though slowly,” said Chinyama. “This is driving investors,” he says adding; “But for the situation to improve, the funds must prop up productive sectors”. The banking sector’s slow and painful attempt to attract capital has not come without challenges. Only six years ago, government was breathing fire.

Former empowerment minister, Paul Mangwana was threatening to kick out banks that resisted or failed to comply with the law. “We were colonised by force,” Mangwana told the legislators in 2007.

“If Standard Chartered Bank feels they cannot continue operations in Zimbabwe they can simply go and CBZ can take over and FBC can do the same. They will frighten you that there will be capital flight but they are neo-liberals. They want to create white islands in a liberated Zimbabwe. We are not going to take that. If you look at the lines of credit they bring, they are very little. Zimbabwe generates US$3 billion in foreign currency per year. But their contribution is only US$70 million. We cannot be held ransom because of US$70 million. The revolutionary stamina in me says no.”