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INSTITUTE OF CHARTERED ACCOUNTANTS OF ZIMBABWE (ICAZ) WINTER SCHOOL – 2011 The Resurgence of the Banking Sector: Are we heading Towards a Normal Banking Environment. 1
INSTITUTE OF CHARTERED ACCOUNTANTS OF ZIMBABWE (ICAZ) WINTER SCHOOL –
2011
The Resurgence of the Banking Sector: Are we heading Towards a Normal Banking Environment.
1
ABOUT MBCA
� Established in 1956 as Merchant Bank of Central Africa Ltd.It was later transformed into a commercial bank andbecame MBCA Bank Limited in 2004.
� MBCA`s major shareholders – Nedbank Limited (RSA)
70.85%; Old Mutual Zimbabwe Limited 18.26% and Shield
MBCA Limited 3.2%
� Vision - To become Zimbabwe's most highly rated and� Vision - To become Zimbabwe's most highly rated andrespected bank by our staff, clients, shareholders, regulatorsand communities
� Mission - To be the leading bank to corporate and businessbanking clients, professionals and high net worth individualsby providing focused and differentiated products andservices
� Values - Respect, Accountability, Pushing beyondboundaries, integrity, being people centred
2
Structure of the Banking Sector
Pre dollarisation
Post dollarisation
Agenda
Regional comparison
What is a normal banking environment
Contribution of the banking sector to economic development
Road-map to normalcy .
3
Structure of Zimbabwe’s Banking Sector
Banking Sector Landscape
Type Number
Commercial Banks 18
Merchant Banks 4
4
Building Societies 4
Microfinance Institutions 115
Savings Bank 1
Source : Reserve Bank of Zimbabwe
Economic Environment – Pre dollarisation (2000-2008)
1998 – 2008 economic crises affected all
sectors.
●Unstable macroeconomic environment –
* High inflation rates of 60% in 1999 and 500
billion % in 2008
Inability to borrow from domestic and
international debt markets leading to
excessive money supply to finance the budget
deficit.
●Worsening social conditions:
- food shortages
- fuel shortages
●Negative GDP growth (-14.4%, 2008 est), and
●worsening balance of payments position.
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The Banking Environment- Pre dollarisation (2000-2008)
� Liquidity and solvency problems
� Inadequate risk management systems
� Poor corporate governance
� Diversion from core business to speculative activities
� Rapid expansion
� High levels of non- performing loans � High levels of non- performing loans
� unsustainable earnings
The result
� Loss of confidence
� Decline in deposits
� Some Banks placed under curatorship
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The Banking Sector – Pre dollarisation (2000-2008)
Total Deposits Zimbabwe(US$ Millions)
0
500
1000
1500
2000
2000
2001
2002
2003
2004
2005
2006
2007
2008
US
$mill
ions
Deposits (US$ Millions )
Source : IMF 7
Years
Real GDP - A Comparison (1999=100)
0
50
100
150
200
1999
2000
2001
2002
2003
2004
2005
2006
2007
Time (years)
Real GDP Zimbabwe
Real GDP - the rest of Africa
Economic Environment – Post dollarisation
� Stability in the economy
� Posted positive GDP of 5.7% in 2009
� Marked decline in inflation to single digits 2009—
- 7.7% , Dec 2010 - +3.24%
� Recovery in capacity utilisation – 47 - 50%
� Increased availability of basic goods and services
� Increased confidence of market participants
� Longer term planning
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Zimbabwe’s Banking Sector- Post Dollarisation
� Towards restoration of confidence in the banking sector.
ITEM 2009 2010%
Change
Deposits (US$ Billions) 1.364 2.567 88
Loans and Advances (US$ Billions) 0.675 1.669 147
9Source : The Reserve Bank of Zimbabwe
Loans and Advances (US$ Billions) 0.675 1.669 147
RTGS Volumes (US$ Billions) 6.7 21.7 224
Imports (US$ Billions) 1.479 2.495 69
Exports (US$ Billions) 1.366 2.221 63
Loans to deposits (%) 49 65
The Banking Sector – Post Dollarisation
� No lender of last resort
� Exchange rate is determined exogenously.
� RBZ has little control over interest rates and money supply.
� Inability to attract funding.
� Inadequate lines of credit to meet demand.
� Market and more stable economy exists
� Encourages the use of a cash budget until the economy fully recovers
� Promotes more efficient allocation of scarce resources to productive and
meet demand.
� Banking system vulnerabilities are increasing and stem from:
� large exposures to the RBZ
� Rising liquidity risk against rising demand for credit
resources to productive and growing sectors.
� Encourages international relationships .
� Greater opportunity for long – term planning
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Banking Sector - Catalyst For Economic Growth
1. Efficient and sound banking sector critical success factor for the
development of an economy.
� Safety
� Track record to back any requests for funding
� Intermediary role – from surplus areas to deficit areas
� Financial Inclusion – Mobile BankingFinancial Inclusion – Mobile Banking
� Financial Deepening
� A catalyst for development in rural areas
2. The banking sector is the main vehicle for executing monetary policy
decisions.
� This area is yet to be developed.
3. Thus there is a positive relationship between banking sector
performance and economic growth (measured by GDP) .
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� The Deposit/GDP ratios for Zimbabwe, post dollarisation, show asteady rise reflecting the level of financial deepening in theeconomy. As bank deposits increase we see an increase in GDPlevels.
� However Zimbabwe appears to be lagging behind other countriesin terms of this ratio as shown in the next slide.
Deposits/GDP ratio – Post Dollarisation
Total Deposits /GDP ratios (estimates)
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Total Deposits /GDP ratios (estimates)
2009 2010 2011(Forecast)
TOTAL BANK DEPOSITS(US$ BILLIONS)
1.364 2.567 3.5
GDP (est.) (US$ BILLIONS)
5.836 7.474 8.916
RATIO (Deposit /GDP) 0.24 0.34 0.39
Ratio of Bank Deposits to GDP
2004 2005 2006 2007 2008
France 0.67 0.67 0.67 0.68 0.68
Germany 0.96 0.98 0.99 1.01 1.04
Greece 0.72 0.76 0.79 0.83 0.86
Sweden 0.42 0.44 0.46 0.49 0.53
United Kingdom 1.11 1.19 1.29 1.40 1.54
Switzerland 1.32 1.35 1.37 1.35 1.33
Deposits/GDP ratios
Switzerland 1.32 1.35 1.37 1.35 1.33
Australia 0.70 0.72 0.75 0.85 0.98
Canada 1.41 1.43 1.52 1.32 1.16
Japan 1.93 1.92 1.89 1.86 1.83
New Zealand 0.84 0.87 0.90 0.92 0.94
United States 0.67 0.68 0.70 0.74 0.78
Demand, time & saving deposits in banks as a share of GDP
Source: Thorsten Beck and Asli Demirgüç-Kunt, "Financial Institutions and Markets Across Countries and
over Time: Data and Analysis", World Bank Policy Research Working Paper No. 4943, May 2009.
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Total Deposits /GDP ratios (estimates)Total Deposits /GDP ratios (estimates)-- A Regional ComparisonA Regional Comparison
Country TOTAL BANK DEPOSITS (US$ B)
GDP ESTIMATES (US$B)
Deposits /GDP ratios Dec 2010
South Africa383.121
321.950 1.19
Malawi 23.487 0.24Malawi 5.637
23.487 0.24
Botswana15.246 36.300
0.42
Zimbabwe 2.567 7.474 0.34
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Source: Various
The Banking Sector: A Regional Comparison
Country Botswana Malawi Mozambique ZambiaSouth Africa Namibia Zimbabwe
COMMERCIAL BANKS 8 11 15 18 18 4 18
BUILDING SOCIETIES 0 3 4
LEASING HOUSES 0 1 10
BUREAUX DE BUREAUX DE CHANGE 52 52 52
MICRO FINANCE HOUSES 0 3 24 1 115
SAVINGS AND CREDIT BANKS 0 5 1
DEVELOPMENT BANKS/ OTHERS 0 1 1 1 45 16
TOTAL NUMBER OF FINANCIAL INSTITUTIONS 60 64 22 109 63 5 153
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Normal banking Environment
� Limited use of cash
� Transactions are card based
� Rise in deposits leading to demonstrable financial deepening.
� Increase in capital flows
� High Volumes going through the formal sector
� Undoubted transparency of developments in the sector
� Effective Deposit Protection mechanism � Increase in capital flows
reflecting confidence in the market
� Thin interest rate spreads.
� Liquidity
� Confidence and trust in the banking system
Protection mechanism
� Effective Credit Bureau
� Increase in volumes of loans esp. to the productive sectors.
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Road Map to Normalcy-Supervisory Authorities
Extension of the lifespan of the multicurrency system
Continue to strengthen and enforce prudential measures aimed at reducing vulnerabilities in
the financial system.
Confidence in supervisory efforts to enforce Confidence in supervisory efforts to enforce compliance and prudential requirements.
Close out issues of funds still held at the Reserve Bank
Restoring the lender of last resort functionality.
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Predictable and stable policy framework
Consistency in policy making in order to restore confidence .
Road Map to Normalcy - Government
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Increased spending on capital projects
Taxation Framework, that encourages Savings & Investment.
Road Map to Normalcy - Government
Undoubted rule of law.
To live within our means
Balance the need to equip locals and to attract foreign investment.
Government as an enabler of business.
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Road Map to Normalcy – Business Community
Need to support innovation and entreneurship within communities
Research and development to increase
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Greater beneficiation of natural resources
Backward and forward linkages between industries
Road Map to Normalcy – Banking Sector
To be a catalyst for growth
Safeguard entrusted depositors funds
Provision of long term finance
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Provision of long term finance
Engaged and in touch with client needs
Good Corporate Governance
CONCLUSION
Are we heading towards a normal banking environment?
Like the apostle Paul said, we have to press on towards the goal to reach the end of the race and receive the heavenly prize for which God, through Christ Jesus, is calling us.calling us.
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