Zim economy overbanked?

Business Correspondent
ZIMBABWE’S economy is overbanked and has the highest number of banks that need to be trimmed as they cannot be sustained under the prevailing conditions, a development economist has said.Zimbabwe’s banking sector comprises 24 commercial banks, four building societies, two merchant banks and one savings bank.

The country’s banking sector is facing a myriad of challenges that threaten the viability and sustainability of financial institutions.

A fortnight ago the Reserve Bank of Zimbabwe cancelled the banking licence of Capital Bank after the latter voluntarily surrendered it.

This follows unwillingness on the part of the bank’s majority shareholder, National Social Security Authority (NSSA), to inject fresh capital into the operations of the bank.

The central bank has in the past cancelled the licences of Trust Bank, Royal Bank and Barbican Bank for failing to meet set requirements and abusing of depositors’ funds.

The remaining banks are reportedly operating in an unsafe and unsound financial condition characterised by critical under capitalisation and persistent losses.

In an interview with Sunday Business last week, economist Mr Prosper Chitambara, said the Zimbabwean economy was too small to accommodate the number of banks.

“The Zimbabwe economy is overbanked. When you compare Zimbabwe with, for example South Africa, Zimbabwe is at most a $10 billion dollar economy with a population of 13 million people and we have about 24 registered commercial banks. South Africa which is the biggest economy in Africa with about $400 billion economy has about above 50 million population has only about 21 commercial banks,” said Mr Chitambara.

“We have also Nigeria which also has a big economy in Africa with $280 billion economy with a population of 120 million and have only 19 commercial banks,” said the economist.

“There is a scope for the local financial system to be consolidated through mergers and acquisitions. If we are able to consolidate our banks into fewer and highly capitalised institutions then we will be able to have a sound banking system,” he said.

He said this was the reason why local banks were struggling while others were shutting down.

“Capital Bank’s license was actually cancelled because of low capitalisation. This could be because we have so many banking institutions,” said Mr Chitambara.

He said many banks were suffering from chronic liquidity challenges and inordinately high levels of non-performing loans.

“The case of Capital Bank was because of non-performing loans. There were insider loans that were not performing.  Our banks are struggling because of high proportion of non-performing insider loans,” he added.

He added that lack of discipline was also affecting the banking sector.

“There is also indiscipline in the financial sector and that’s why most of our non-performing loans are insider loans,” said Mr Chitambara.

He added that there was a need for local banks to be innovative and introduce new financial products to survive in the highly competitive sector.

However, in an interview, a local bank manager in Bulawayo said the Zimbabwean economy was not overbanked as most people had no bank accounts.

“Zimbabwean economy is not over banked. In fact it’s under-banked because the largest population of the country has no bank accounts or excluded from the financial system,” said the manager.

A detailed study by FBC Securities late last year says Zimbabwe, was not overbanked as only 14 percent of the population had bank accounts.

“In a country with a population of 13,8 million at a GDP of US$10,81 billion, housing 22 banks and over 100 microfinance institutions, one could easily jump to the conclusion that Zimbabwe is overbanked. However, our estimates have revealed that only 14 percent of the total population has access to the formal banking services.

This is possibly attributed to penetration of banks in capturing the unbanked rural population and thriving informal sector,” the report said.

“In Zimbabwe, most banks are located in major towns and cities due to the traditional view that towns and cities offer better business compared to the rural areas, thereby leaving the rural community unserviced.”

FBC concluded that the Zimbabwean economy was still under-banked given the larger population of the country was either unbanked or excluded from the financial system.