By Tawanda Musarurwa
THE collapse of Lehman Brothers, then a behemoth among international banks, in September 2008 nearly brought down the world’s financial system.It came to typify the era’s financial crisis and global recession. And the upshot of the financial crisis and the global recession is that even local financial sector players are operating in an environment that – all things being equal – would be considered abnormal.
The new challenges facing the sector have become so commonplace they have come to be known as the ‘new normal’.
Notwithstanding what I have just said above, it remains a truism that the fundamental role of banks in any economy has not changed: Banks essentially function to channel savings towards productive investment and hence drive the ‘real economy’ (that is, the segment of the economy that is concerned with actually producing goods and services, as opposed to the part of the economy that is concerned with buying and selling on the financial markets).
New vs. Old
While the ‘new normal’, to put it in a nutshell, can be condensed into two words ‘substantial uncertainty’, the normal that is now a thing of the past was typified by long periods of low macroeconomic volatility, sustained economic growth, low credit and liquidity availability, as well as asset prices on a constant upward trend.
Governor of the country’s financial services regulator the Reserve Bank of Zimbabwe (RBZ), Dr John Mangudya appreciates how the local sector has evolved since the 2008 global financial crisis, not to mention changes that have been brought about by the local financial services sector’s own profligacy in the recent past.
“We have witnessed a paradigm shift in the post Zimbabwean Banking Sector crisis (2004) and the global financial crisis (2008) era where the financial sector is no longer just an engine for economic growth, but also a steady custodian.
“From a predominant focus on driving economic wealth and maximising shareholders’ return, the financial sector has been gravitating towards optimising returns whilst caring about risks, protection of customers and economic and sector stability.
“Thus the sector has undergone major structural and strategy changes which in turn demand that human capital management strategies should change,” he said recently.
An analysis of the FY2106 interims of local banks shows an increasing aversion for extravagant lending, what I may call a fall into the ‘safe banking model’ that Barclays Bank Zimbabwe has crowed about way before signs of the 2004 or the 2008 financial crises were hardly visible.
So local banks have clearly learnt some lessons from these calamities, but do they have a full appreciation of what they are up against?
First thing’s first. It will take some time for local banking sector to regain trust lost during its years of decadence.
Not just trust from customers, but also the sector itself.
While previously financial sector regulation was at best light-touch, it has become rather intense.
The Government’s reviews of the Banking Act (Chapter 24:20), and currently the Reserve Bank of Zimbabwe Act (Chapter 22:15) are no joke.
Following the conclusion of the International Monetary Fund (IMF)’s third review under the Staff Monitored Program, head of the visiting team Mr Domenico Fanizza said in a report:
“The number of troubled banks has been reduced from seven to four through closures, mergers and voluntary surrenders of licences. The RBZ has been proactive in ensuring the efficient resolution of these banks.
“Shareholders and boards of troubled banks have been directed to finalise their turnaround plans by end-2014 or face supervisory intervention. In addition, amendments to the Banking Act will strengthen RBZ’s powers to effectively deal with troubled banks.”
The 2008 financial crisis has led to critical and sweeping reform of the broader regulatory framework and a redesign of the supervisory architecture, what with the growing impact of cyber-crime and money-laundering…
And even the political environment now means local banks have to have an appreciation of the ‘new order’ of things. In February last year, the United States Department of the Treasury’s Office of Foreign Assets Control (OFAC) fined Barclays Bank Plc $2, 48 million to resolve potential civil liability for 159 apparent violations of the Zimbabwe sanctions regulations.
This was after between July 2008 and September 2013, Barclays processed 159 banned transactions worth about $3, 4 million through financial institutions in the United States, including Barclays’ New York branch.The transactions were for corporate customers of Barclays Bank of Zimbabwe Limited that were owned 50 percent or more, directly or indirectly, by a company on OFAC’s List of Specially Designated Nationals and Blocked Persons.
The above clearly shows a lack of appreciation on the part of Barclays – ‘safe model’ and all – of the landmines in the ‘new’ macro-environment.
“The financial institution of the future will be defined by agility that facilitates rapid transformation demanded by the rapid changes in technology, customer preferences and volatility of financial markets,” says Dr Mangudya.