THE first quarter of 2017 (Q12017) has just come to pass and this week’s instalment focuses on the dominant events which shaped the trajectory of the financial sector during this period. It is clear the quarter has been mainly about dealing with the fallout of the deepening foreign currency crisis.
Financial Spotlight: Omen Muza
Interventions included banks putting restrictions on usage of cards and imposing international transaction limits, while Visa announced plans to introduce a local settlement service. The failure by airlines to repatriate their funds and Econet Wireless’ pre-emptive rights offer meant to raise funds for debt settlement were, amongst the most telling indicators of the extent of the country’s foreign currency woes. Predictably, the discourse was also dominated by regulatory and legal issues pertaining to bond notes, which are seen in some circles as partly responsible for the foreign currency debacle.
Global payments technology company Visa announced plans to introduce the National Net Settlement Service, which is built on Visa’s transaction processing network VisaNet, and allows Zimbabwean banks to process, clear, report and settle domestic United States dollar-denominated card transactions locally. The move came as local banks put restrictions on local Visa transactions due to the biting liquidity crunch obtaining in the economy since they would have had to settle using funds from an offshore account.
Zimbabwe’s largest financial services group by assets, CBZ Holdings suspended use of the Visa card on the local market with effect from January 15, 2017, following in the footsteps of Barclays Bank Limited, which instituted similar measures late 2016. In a statement released to depositors on January 5, the financial institution also announced new limits for international transactions, pointing out that the Visa card would continue to work internationally.
BancABC announced the closure of the Graniteside branch, merging its operations into the Southerton, as well as the Leopold Takawira and Longcheng branches, both of whose operations were merged into the Heritage Branch.
Econet Wireless Zimbabwe Limited announced plans for a capital raise of circa $130 million by way of a rights offer of ordinary shares and linked debentures to facilitate the servicing of obligations to its foreign lenders namely China Development Bank, Ericsson Credit AB, Afreximbank and Industrial Development Corporation. “In recent months it has become clear that there is a critical shortage of foreign currency in the overseas nostro accounts of Zimbabwe’s banks, and that the flow of local USD cash that those banks can export to fund their nostro accounts has diminished materially. This has made it extremely difficult for the Company and its Subsidiaries to service their financial obligations to Lenders and Creditors outside Zimbabwe. To avoid defaulting on its loan obligations, the Company intends to raise foreign currency from its members by way of a rights offer of shares and linked debentures,” said the Zimbabwe Stock Exchange-listed company.
The Reserve Bank of Zimbabwe released $15 million worth of $5 bond notes into the market, which started circulating from February 2, 2017 bringing the total value of bond notes released so far to $88 million.
Standard Chartered Bank Zimbabwe advised its clients of the cancellation of use of Visa debit cards outside Zimbabwe. “We regret to advise that we have cancelled the automatic use of your VISA debit card outside Zimbabwe with immediate effect. However, clients who wish to use their cards outside Zimbabwe may still apply for special consideration prior travel. Please note, there are no changes to the local functionalities of the Visa debit card. This decision has been taken to ensure best use of the increasingly scarce foreign currency resources which is disbursed in line with the priority list issued by the Reserve Bank of Zimbabwe if and when available,” said the bank in a notice published on February 7.
The month of February was quite active in the C-Suite. Starting with IPEC’s appointment of Tendai Karonga to the position of Commissioner of Insurance and Pensions with effect from February 1, 2017. The month ended with the departure of CBZ Holdings non-executive chairman Elliot Mugamu apparently due to shareholder activism by the National Social Security Authority which expressed doubts about his independence given the remuneration structure he was reportedly enjoying. Meanwhile, Old Mutual Emerging Markets’ appointment of Jonas Mushosho to the position of chief executive officer for their Rest of Africa business is no doubt another fine feather on his cap and an endorsement of Zimbabwe’s capability to produce leaders that are fit for purpose on the pan-African stage. On a sad note, the death of veteran investment manager and Zimnat Asset Management Company managing director Tony Fisher on February 5 2017 at the age of 70 is an immense loss to the country’s investment community. The sudden departure of John Vitalo, a man considered to be Bob Diamond’s lieutenant, from Atlas Mara’s owned ABC Holdings (ABCH) so soon after assuming the reins from Blessing Mudavanhu on 29 August 2016, was one of our highlights of February. This does not portend well for a company that is on a recovery path and had been tipped to shake the financial services landscape in Africa.
On February 15 2017, Joice Mujuru’s application challenging the validity of a Presidential decree that introduced bond notes was struck off the roll. The Constitutional Court made a ruling on a procedural point raised by President Robert Mugabe and his co-respondents, that Mujuru should first challenge the Presidential (Temporary Measures) Powers Act under which the President acted to introduce the bond notes.
ZimSwitch confirmed that it was carrying out a trial for its cross border payment system which was expected to enable Zimbabweans to transact within the region using their bank cards on ZimSwitch. “Your ZimSwitch card should be able to work in any of the SADC countries without resorting to other card associations like Visa or MasterCard,” said ZimSwitch Projects and Product development manager Terence Manhanga.
Zimnat, which has interests in insurance, life assurance, asset management and microfinance on 29 March 2017 officially rebranded all its subsidiaries to reflect its partnership with pan African shareholder, Sanlam Group, which in 2015 acquired a 40% stake in Zimnat at a value of $11, 6 million through its subsidiary Sanlam Emerging Markets (SEM). Zimnat said for its clients, this meant products of international standards, excellent technical support, superior customer experience, security and peace of mind.
First Merchant Bank Malawi (FMB) on March 28 issued cautionary statement saying it was in discussions with Barclays Bank Plc over the potential acquisition of the group’s controlling stake (67,68% ) in Barclays Bank of Zimbabwe. FMB is listed on the Malawi Stock Exchange while it also has equity interests in banking operations in Botswana, Mozambique and Zambia.
Government stood to lose property to the Sheriff of the court after the High Court invalidated the law that prevented companies and individuals from attaching State property. In a landmark ruling on March 15, Justice Edith Mushore struck down Section 5 (2) of the State Liabilities Act (Chapter 8:14), following an application by Mutare businessman Tendai Blessing Mangwiro seeking an order declaring the section unconstitutional. “Section 5 (2) of the State Liabilities Act (Chapter 8:14) be and is hereby declared to be inconsistent with the Constitution of the Republic of Zimbabwe and is therefore invalid,” said Justice Mushore.
According to a Government Gazette published on March 24, President Robert Mugabe signed the Reserve Bank of Zimbabwe Act, supposedly putting to finality the legality of bond notes that came into circulation towards the end of 2016 and bond coins that were already in circulation. Meanwhile, the Reserve Bank of Zimbabwe revealed that bond notes in circulation had increased to $102 million with RBZ governor John Mangudya noting that together with bond coins, they now accounted for1,8% of deposits at banks.
Caught up in Zimbabwe’s foreign payments gridlock, international airlines were failing to repatriate close to $30 million locked in domestic banks, a crisis that forced the International Air Transport Association to dispatch its top executives into the country for meetings with authorities to explore possible solutions.
Omen N. Muza edits the MFSB. You can view his LinkedIn profile at zw.linkedin.com/pub/omen-n-muza/30/641/3b8 or initiate contact on email@example.com.