INSTITUTE OF CHARTERED ACCOUNTANTS OF ZIMBABWE (ICAZ) WINTER SCHOOL 2011

Transcription

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

2 ABOUT MBCA Established in 1956 as Merchant Bank of Central Africa Ltd. It was later transformed into a commercial bank and became MBCA Bank Limited in 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 respected bank by our staff, clients, shareholders, regulators and communities Mission - To be the leading bank to corporate and business banking clients, professionals and high net worth individuals by providing focused and differentiated products and services Values - Respect, Accountability, Pushing beyond boundaries, integrity, being people centred 2

3 Agenda Structure of the Banking Sector Pre dollarisation Post dollarisation Regional comparison What is a normal banking environment Contribution of the banking sector to economic development Road-map to normalcy. 3

4 Structure of Zimbabwe s Banking Sector Banking Sector Landscape Type Number Commercial Banks 18 Merchant Banks 4 Building Societies 4 Microfinance Institutions 115 Savings Bank 1 Source : Reserve Bank of Zimbabwe 4

5 Economic Environment Pre dollarisation ( ) 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. 5

6 The Banking Environment-Pre dollarisation ( ) 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 unsustainable earnings The result Loss of confidence Decline in deposits Some Banks placed under curatorship 6

7 The Banking Sector Pre dollarisation ( ) Total Deposits Zimbabwe(US$ Millions) 2000 US$millions Deposits (US$ Millions ) Years Real GDP - A Comparison (1999=100) Real GDP Zimbabwe Real GDP - the rest of Africa Time (years) Source : IMF 7

8 Economic Environment Post dollarisation Stability in the economy Posted positive GDP of 5.7% in 2009 Marked decline in inflation to single digits %, Dec % Recovery in capacity utilisation 47-50% Increased availability of basic goods and services Increased confidence of market participants Longer term planning 8

9 Zimbabwe s Banking Sector- Post Dollarisation Towards restoration of confidence in the banking sector. ITEM % Change Deposits (US$ Billions) Loans and Advances (US$ Billions) RTGS Volumes (US$ Billions) Imports (US$ Billions) Exports (US$ Billions) Loans to deposits (%) Source : The Reserve Bank of Zimbabwe 9

10 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. Banking system vulnerabilities are increasing and stem from: large exposures to the RBZ Rising liquidity risk against rising demand for credit 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 growing sectors. Encourages international relationships. Greater opportunity for long term planning 10

11 Banking Sector -Catalyst For Economic Growth 1. Efficient and sound banking sector critical success factor for the development of an economy. Safety Trackrecordtobackanyrequestsforfunding Intermediary role from surplus areas to deficit areas Financial 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. Thisareaisyettobedeveloped. 3. Thus there is a positive relationship between banking sector performance and economic growth(measured by GDP). 11

12 Deposits/GDP ratio Post Dollarisation The Deposit/GDP ratios for Zimbabwe, post dollarisation, show a steady rise reflecting the level of financial deepening in the economy. As bank deposits increase we see an increase in GDP levels. However Zimbabwe appears to be lagging behind other countries intermsofthisratioasshowninthenextslide. Total Deposits /GDP ratios (estimates) TOTAL BANK DEPOSITS (US$ BILLIONS) GDP (est.) (US$ BILLIONS) (Forecast) RATIO (Deposit /GDP)

13 Deposits/GDP ratios Ratio of Bank Deposits to GDP France Germany Greece Sweden United Kingdom Switzerland Australia Canada Japan New Zealand United States 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

14 Total Deposits /GDP ratios (estimates) - A Regional Comparison Country TOTAL BANK DEPOSITS (US$ B) GDP ESTIMATES (US$B) Deposits /GDP ratios Dec 2010 South Africa Malawi Botswana Zimbabwe Source: Various 14

15 The Banking Sector: A Regional Comparison Country Botswana Malawi Mozambique Zambia South Africa Namibia Zimbabwe COMMERCIAL BANKS BUILDING SOCIETIES LEASING HOUSES BUREAUX DE CHANGE MICRO FINANCE HOUSES SAVINGS AND CREDIT BANKS DEVELOPMENT BANKS/ OTHERS TOTAL NUMBER OF FINANCIAL INSTITUTIONS

16 Normal banking Environment Limited use of cash Transactions are card based Rise in deposits leading to demonstrable financial deepening. Increase in capital flows reflecting confidence in the market Thin interest rate spreads. Liquidity Confidence and trust in the banking system High Volumes going through the formal sector Undoubted transparency of developments in the sector Effective Deposit Protection mechanism Effective Credit Bureau Increase in volumes of loans esp. to the productive sectors. 16

17 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 compliance and prudential requirements. Close out issues of funds still held at the Reserve Bank Restoring the lender of last resort functionality. 17

18 Road Map to Normalcy - Government Predictable and stable policy framework Consistency in policy making in order to restore confidence. Increased spending on capital projects Taxation Framework, that encourages Savings & Investment. 18

19 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. 19

20 Road Map to Normalcy Business Community Need to support innovation and entreneurship within communities Research and development to increase Greater beneficiation of natural resources Backward and forward linkages between industries 20

21 Road Map to Normalcy Banking Sector To be a catalyst for growth Safeguard entrusted depositors funds Provision of long term finance Engaged and in touch with client needs Good Corporate Governance 21

22 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. 22