Zimbabwe puts squeeze on banks for higher capital

HARARE (Reuters) – Zimbabwe has increased minimum capital requirements for banks to as much as $100 million, a move which could hold back a drive to force foreign banks to sell majority shares to locals while forcing small, locally owned ones to merge.

In a monetary policy statement presented in Harare, central bank governor Gideon Gono pushed for consolidation, warning that poorly capitalised banks posed a threat to the stability of the financial sector and the economy as a whole. 

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“Mergers and acquisitions have become a major strategic option, aimed at entrenching a strong, efficient and diversified financial sector that ensures the safety of depositors’ funds and plays a developmental role in the economy,” Gono said. 

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He added that the size of Zimbabwe’s economy was too small to support 25 banks, some of which are already struggling. As many as four banks have been forced to closed or placed under administration in the past year. 

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The new capital requirements are higher than those in much larger regional economies such as South Africa, Kenya and Angola, according to central bank statistics. 

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Commercial and merchant banks, whose current minimum capital requirements are $12.5 million, will need to have $25 million in capital by December this year, which will rise to $100 million by June 2014, Gono said. 

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Mortgage lenders’ minimum capital will go up to $20 million in December 2012 from the current $10 million, ultimately rising to $80 million in June 2014. 

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According to Gono, the latest local bank to fail, Royal Bank, registered a $6 million loss in the six months to June as it choked under a bad loan book, 99 percent of which was not performing.

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Britain’s Standard Chartered and Barclays Plc and South Africa’s Standard Bank and Nedbank are the major foreign banks with operations in Zimbabwe. 

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Local investors in Zimbabwe are likely to struggle to raise the capital needed to buy shares in foreign-owned banks, should the sector be forced to take locals on board as majority shareholders. 

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Earlier this month, Zimbabwe’s empowerment minister Saviour Kasukuwere gave foreign banks one year to hand over 51 percent shares to locals under a controversial ownership law being championed by President Mugabe. 

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Kasukuwere and Gono, both Mugabe appointees, have frequently wrangled over the application of the empowerment law — which has so far been used to compel mines to cede shares to locals — to the banking sector. 

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On Tuesday, Gono repeated his warning that forcing foreign banks to localise could adversely affect Zimbabwe’s stuttering recovery.