entrepreneurs build their business in the context of the environment, which in some cases may not be able to control them. He tried durability of the project initiative and tested by the vagaries of the environment. Within the environment and the forces that may be great opportunities and also threats and intimidation to the survival of the business. You need to understand the business environment in which it operates so as to exploit the emerging opportunities and mitigate potential threats.
This article is working to create an understanding of the actors and their impact on banks' business in Zimbabwe. And it is A Short History of the banking business in the outside Zimbabwe. And the impact of regulatory and economic environment of the sector evaluated. The banking sector structure analysis facilitates the assessment of the underlying forces in the industry.
historical background
at independence (1980), Zimbabwe had a sophisticated banking and financial market, with owned commercial banks in foreign, mostly. The country's central bank inherited from the Central Bank of Rhodesia and Nyasaland at the end of the Union.
over the first few years of independence, Zimbabwe's government did not intervene in the banking industry. There was no nationalization of foreign banks and restrictive legislative intervention on sectors to finance or interest rates to charge, even though the ideology of national socialism. However, the government has bought some of the contributing banks. Nedbank acquired the 62% of Rhobank at a fair price when the bank withdrew from the country. Motivation may be behind the decision expresses the desire to stabilize the banking system. Re-branded bank also Zimbank. He said that the state does not interfere too much in the bank's operations. State in 1981 is also a partnership with the Bank of Credit and Commerce International (BCCI) as a shareholder of 49% in a new commercial bank, credit and Commerce Bank of Zimbabwe (BCCZ). This has repeatedly taken and transferred to the Commercial Bank of Zimbabwe (CBZ) When BCCI collapsed in 1991 over allegations of unethical business practices.
This should not be regarded as nationalization, but in line with the state policy to prevent the closure of the company. The diluted the company's shares in each of Zimbank and CBZ at a later time to less than 25% each.
in the first decade, the license of any national bank and there is no evidence that the government has no financial reform plan. Harvey (II, p. 6) cites the following as evidence of the lack of a coherent plan for financial reform in those years:
- In 1981 the government announced it would encourage rural banking services, but has not implemented the plan.
- in 1982 and 1983 and suggested the money and the Finance Committee, but did not form.
- By 1986, there was no mention of any agenda for financial reform in the five-year national development plan.
Harvey says that the government kept to intervene in the financial sector can be explained by the fact that he does not want to harm the interests of the white population, which was an integral part of banking. The country was vulnerable to this sector of the population, controlled agriculture and manufacturing, which has been a mainstay of the economy. State has adopted a conservative approach to settle because they have learned a lesson from other African countries, which almost collapsing economies because of the forced eviction of the community eggs without first setting up a mechanism for the transfer of skills and capacity building in the black community. He said the economic cost of intervention is inappropriate to be too high. Another reason is a reasonable policy of non-interference to the state, at independence, inherited a severe economic control policy, with strict mechanisms to monitor exchange, than its predecessor. Since the control of foreign currency has affected credit control, and government default, it has had a strong hold of the sector's economic and political purposes. Thus it did not need to intervene.
financial reforms
However, after 1987 the government, at the request of the parties to the multiple lenders, and embarked on economic structural adjustment program (Assistance Program). As part of this program the central bank began to Zimbabwe (RBZ) financial reforms call through trade liberalization and deregulation. It claimed that an oligopoly in the banking sector and the lack of competition, depriving the sector of choice and quality service, innovation and efficiency. As a result, in early 1994 Annual Report RBZ desire to increase competition and efficiency in the banking sector indicates, leading to banking reforms and new legislation that would:
- be allowed to conduct the prudential supervision of banks along the global best practices
- allowing for both off and on-site inspections Bank to increase the function of banking supervision and RBZ
- to promote competition, innovation, and improve service to the public from the banks.
Later in the banks registered in the Ministry of Finance the time, in connection with the RBZ, began issuing licenses to new players as opening up the financial sector. From the mid 190s until December 03, there has been a flurry of business activity in the financial sector, where it has identified the original-owned banks so. The chart below depicts the trend in the number of financial institutions by category, and has been operating since 1994. The trend shows an initial increase in commercial banks and discount houses, followed by a decline. The increase in commercial banks in the slow start, gaining momentum throughout 1999. The decline in commercial banks and discount houses scheduled to turn them, mostly in the commercial banks.
Source: RBZ reports
usedowners of different projects varied methods to penetrate the financial services sector. Some advisory services began and then upgrade to the commercial banks, while others brokerages began, which was high in the discount houses.
from the beginning of the liberalization of financial services up to about 1997, there was a notable absence of commercial banks locally owned. Some of the reasons for this are:
- license to maintain a policy of pre-registered financial institutions because it was risky to license the original-owned commercial banks without legislative authority and banking experience to enable oversight.
- chose men of banking financial institutions, non-banking, as this was less expensive in terms of initial capital and working capital requirements. For example, a commercial bank requires less staff, will not need banking halls, and would have no need to deal in small retail deposits is expensive, which would reduce overheads and reduce the time required to record profits. Thus, there was a rapid increase in non-banking financial institutions at that time, for example in 1995, five of the ten commercial banks have begun in the previous two years. This has become a route of choice in entering the commercial banking business for some, such as the UK bank, NMB Bank and Trust Bank.
, and it it was expected that some of the foreign banks would also enter the market after the financial reforms, but this did not happen, and probably due to the restriction of the existence of the minimum local equity of 30%. It can also be played strict foreign exchange controls a part, as well as a cautious approach to the licensing authorities approved. Did not ask foreign banks found to have a portion of their shares despite the act of Barclays Bank, through a listing on the local bourse.
Harvey says that financial liberalization is supposed to remove the trend on lending is assumed that the banks will be able to automatically lending on a commercial basis. But he stresses that the banks may not be as such also affected by the inability of borrowers to service loans because of foreign exchange restrictions or price controls. Similarly, the presence of positive real interest rates usually increase bank deposits and increased brokerage But this logic falsely assumed that banks will always lend more efficient. He also says that the licensing of new banks does not mean increased competition because it is assumed that the new banks will be able to competent department attraction, and that legislation and banking supervision will be sufficient to prevent fraud, and thus prevent the collapse of banks and the financial crisis resulting from it. Unfortunately it does not seem his concerns have been addressed in the framework of the reform of the financial sector of Zimbabwe, on account of the national economy.
operating environment
any activity or subsidized projects are constrained operating environment. This section analyzes the situation in Zimbabwe, which could have an impact on the banking sector environment.
Politico legislative
and the political environment in the stable 190s but turned volatile after 1998, mainly due to the following factors:
- a wage not included in the budget to veterans after it launched an attack on the state in November 1997. this exercise great pressure on the economy, leading to long on the dollar. Zimbabwean dollar output fell by 75%, as predicted by the market consequences of the government's decision. That day has been recognized as the beginning of a sharp drop in the country's economy, and was dubbed "Black Friday." This consumption has become a catalyst for further inflation. This was followed by a month after the occurrence of violent riots.
- Launch of poorly planned agricultural land reform in 1998, where he was commercial white farmers expelled outwardly and replaced by blacks without due regard for the rights of the land or compensation systems. This led to a significant decline in the productivity of the country, which relies mostly on agriculture. The way in which it was dealt with and the redistribution of land that has outraged the international community, that claim to be ethnically and politically motivated. International donors withdrew support for the program.
- advised abuse. Military incursions, named sovereign legal process, to defend the Democratic Republic of the Congo in 1998, the country witnessed incur huge costs without clear benefit for himself and
- The elections, which the international community alleged manipulation in 00,03 and 08.
these factors into international isolation, chief foreign exchange and reduce the flow of foreign direct investment into the country. Investor confidence has been eroded severely. Agriculture and tourism, which traditionally are big sources of foreign currency, which collapsed.
for the first ten years after independence, the Banking Act (1965), the main legislative framework. Because that was issued when most of the commercial banks where owned by a foreigner, there were not guidance on prudent lending, and loans from the inside, and the ratio of shareholders' funds that can be lent to a single borrower, risky assets definition, does not provide for bank inspections.
and banking law (24:01), which entered into force in September 1999, it was the culmination of a desire RBZ to edit and liberalization of financial services. This law regulates commercial banks, commercial banks, discount houses. The removal of entry barriers lead to increased competition. Also it allowed to lift restrictions some banks the freedom to work in the non-core services. It seems that this offer was not well-defined and thus provides opportunities for risk taking entrepreneurs. RBZ called the lifting of restrictions as a way to disarm the financial sector segment as well as improve efficiency. (RBZ, 00: 4.) These two factors represent opportunities for the enterprising original bankers to create their own businesses in the industry. Law was revised and reissued in Chapter 24:20 in August 00. The increased competition in the provision of new products and services such as electronic banking services in the banking shop. This has resulted in commercial activity in the "deepening and development of the financial sector" (RBZ, 00: 5).
and as part of the financial reforms pay, and the Central Bank Law (22:15) was released in September 1999.
was The main purpose of strengthening the supervisory role of the Bank through:
- prudential standards within banks put started working on
- conduct on and off site supervision of banks
- the imposition of sanctions and, where necessary placed under curatorship and
- investigation banking institutions wherever necessary.
This law was still argued palaces as Dr Tsumba, governor then RBZ, there is a need for the RBZ to be responsible for all of the licensing and control of "the maximum penalty available to the supervisor of the banking defined will cancel the banking sector that the license issued to a flagrant violation operating rules. " But the government appeared to have resisted this until January 04. It could be argued that this shortage has given some bankers impression that nothing will happen licenses. , To monitor the role of the RBZ in the bank's management contract, board members and shareholders responsible for the feasibility of the banks, Dr Tsumba said it was not the role of the RBZ no intention "to guide banks and direct their daily operations per day."
It seems as though if he looked behind him differed too much from this orthodox opinion, and thus guide the mini observed in the sector since December 03.
in November 01 troubled banks and bankrupt politics that have been formulated over the past few years years, became operational. It was one of the desired goals that "regulatory policy that promote transparency, accountability and ensures regulatory responses will be applied in a fair and consistent," the prevailing view in the market is the way that this policy when he was executed after 03 is incomplete as surely as measured by these ideals. It set aside how transparent and the inclusion and exclusion of weak banks in ZABG.
was a new governor of the RBZ set in December 03 when the economy was in free fall. It made big changes in monetary policy, which caused tremors in the banking sector. RBZ was finally authorized to act as both the licensing and regulatory authority for financial institutions in January 04. It reviewed the regulatory environment and introduced significant amendments to the laws that govern the financial sector.
and troubled financial institutions law decision, (04) was released. As a result of the new regulatory environment, the number of troubled financial institutions. RBZ put seven institutions under curatorship while one was closed and placed others under liquidation.
in January 05 of three troubled banks were merged on the authority of the troubled financial institutions and law for the formation of a new institution, Zimbabwe Allied Banking Group (ZABG). It was alleged that these banks failed to pay back the money provided to them by the RBZ. The institutions were affected Trust Bank, Royal Bank and Barbican. He appealed to shareholders and won the appeal against the confiscation of their assets with the Supreme Court's ruling, which was trading at ZABG assets illegally acquired. These banks and appealed to the Minister of Finance and lost its appeal. Later, in late 06 and they appealed to the courts, as provided by law. Finally, as in April, 2010 RBZ finally agreed to return to the "stolen assets".
was another measure taken by the new governor to impose administrative changes in the financial sector, resulting in most of the founders of the bank's initiative, which was forced out of the private companies under various pretexts. Some escaped in the end the country under the threat of arrest. It has been restructured bank boards.
economic environment
In economic terms, the stable state until the mid-190s, but the downturn began about 1997 to 1998, mainly due to political decisions taken at that time, as previously mentioned. Economic policy due to political considerations. As a result, there was a withdrawal of multinational donors and the country was isolated. At the same time, the drought hit the country in the 01-02 season, resulting in a worsening of farm evictions on crop production harmful effect. This was a decline in production has a negative impact on banks that finance agriculture. Resulted in the interruption of commercial agriculture and reducing the attendant in the production of food in the food security situation is stable. In the last twelve years the country was forced to import corn from the lack of resources of foreign currencies in the fragile country.
Another effect of the agrarian reform program is that most of the farmers who borrowed money from banks can not service the loans, the government, which took over the business, he refused to take responsibility for the loans. Because of the failure at the same time to compensate farmers immediately and to some extent, it has become impractical for farmers to service the loans. Thus, banks are exposed to these bad loans.
The net result may evolve inflation, and the closure of the company resulting in high rates of unemployment, lack of foreign currency as reported international sources of funds dried up, and food shortages. It has led to a shortage of foreign currency shortages of fuel, which in turn reduced the industrial production. As a result, the gross domestic product (GDP) to decline since 1997. This negative economic environment mean reduced banking activity with the decline in industrial activity and driven banking services in parallel instead of the formal market.
As shown in the graph below, the escalation of inflation reached a peak of 630% in January 03. After a brief respite upward trend continued to rise to 1729% by February 07. After that the country entered a period of inflation unheard in time of peace. Inflation confirms banks. Some argue that the inflation rate rose due to currency devaluation accompanied by reducing the budget deficit. Inflation causes interest rates to rise, while the value of collateral drops guarantees, resulting in a mismatch of assets and liabilities. It is also non-performing loans increase as more people fail to service their loans.
effectively, by 01 most of the banks' conservative lending strategy has been adopted, for example, with the total advances of the banking sector only being 21.7% of total assets industry compared to 31.1% in the previous year. Banks resorted to volatile non-interest income. And some began trading in the foreign exchange market parallel, sometimes in collusion with the RBZ.
in the latter half of 03 there was a severe shortage of liquidity. People stopped using banks as intermediaries because they were not sure they would be able to access their money whenever they need it most. This deposit base of banks reduced. Because short-term to maturity of bank deposits are usually not able to invest large portions of their funds in long-term assets were high liquidity up to mid-03 now. But in 03, due to customer demand has a matching inflation returns, most local banks have resorted to speculative investments, which resulted in higher returns.
these speculative activities, mostly on non-core banking activities, led the tremendous growth in the financial sector. For example, one bank had its asset base grow from Z 0 billion (USD50 million) to Z $ 800000000000 (USD0 million) $ within one year.
but bankers have argued that the reason the governor considered speculative non-core business best practices in the most advanced banking systems around the world. They say it is not uncommon for banks to take equity positions in non-banking institutions that lent money to protect their investments. Examples were given of banks such as Nedbank (RSA), JP Morgan (USA), which controls large real estate investments in their portfolios. Bankers convincingly believes that these investments are sometimes used as a hedge against inflation.
The instruction by the new governor of the RBZ to banks to relax their positions overnight, and the immediate withdrawal of the support housing overnight to banks by the RBZ, the crisis that led to the lack of a big mismatch of assets and liabilities and liquidity crisis for most banks stimulated. Zimbabwe prices of real estate and securities collapsed at one time, due to large-scale selling by banks that were trying to cover their positions. The loss of value in the stock market means the loss of value of the collateral, which most banks was held in lieu of loans made.
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