What crisis? SA banks are cooking in the Zimbabwe heat

Business

What crisis? SA banks are cooking in the Zimbabwe heat

The country needs financial services more than ever – and cash shortages have actually boosted banks

Londiwe Buthelezi


Zimbabwe certainly is a challenging market at the best of times, especially when it comes to financial services.
According to the World Bank’s development indicators, the number of depositors at commercial banks there almost halved to 244 per 1,000 adults in 2016, from 480 a decade earlier. Although there has been a slight improvement to 392 depositors per 1,000 adults in 2017, cash shortages and political instability still make the country relatively unattractive from an investment point of view. However, SA financial institutions with operations in Zimbabwe say despite the challenges they are committed to growing their market share in the country. Warwick Bam, head of research at Avior Capital markets, says he is not surprised because while the potential for opportunity in the country in the short to medium term is gloomy, “Zimbabweans will need financial services more than ever through this crisis”.
Many businesses came to a standstill earlier this month when Zimbabweans protested against a 150% fuel-price hike. The country imposed a “total internet shutdown” for a day while social media sites were down for several more. Businesses also had to close their doors when protests became violent as soldiers clashed with civilians.
A number of SA companies reportedly had to shut down, including Nedbank. Last week the bank said it would temporarily close its doors when the situation compelled it to but it remains committed to its subsidiaries in the continent.
Nedbank owns and manages banks in six SADC markets and in the first half of 2018 reported a 6% increase in client numbers. Although it does not provide detailed figures for Zimbabwe separately, it is likely to have increased its banking market share in the country after the rebranding of the Merchant Bank of Central Africa to Nedbank Zimbabwe.
Zimbabwe delivers a good return on shareholders’ capital. In the first half of 2018, return on equity on subsidiary and associate in-country statutory capital in Zimbabwe stood at 17.4% compared with Nedbank’s return on equity of 7.6% for the rest of Africa.
Through Nedbank’s partnership with Ecobank Transnational Incorporated (ETI), Zimbabwe also has the potential to bring in the highest transactional revenue from remittances. The bank’s 2017 integrated report showed that total remittances from SA to Zimbabwe amounted to $788m, the highest of all markets where Nedbank is collaborating with ETI, more than double that of Nigeria.
Fungai Nyaungwa, senior associate researcher at Akribos Capital, says cash shortages have actually boosted the financial services sector, particularly banks.
“Generally the sector has been performing well, despite headwinds, with record fee collections as transactions are now largely through the use of point-of-sale (POS) machines, real-time gross settlement transfers and mobile money,” said Nyaungwa.
Standard Bank has capitalised on this. In the first half of 2018, the bank reported higher transactional volumes in Zimbabwe after increasing POS devices and seeing a surge in digital transactions. Stanbic Zimbabwe delivered a profit after tax of $16.4m in the six-month period to June 30 2018.
Old Mutual has declared a “deep commitment” to increase shareholder value in Zimbabwe, despite not being able to remit R400m in free surplus from Zimbabwe in the first half of 2018 due to cash constraints. Old Mutual went as far as taking a secondary listing in Zimbabwe in June last year. Bam said the group’s commitment to Zimbabwe is understandable given that the country’s operations represent between 5% and 8% of group earnings.
“Old Mutual has conducted business in Zimbabwe for 110 years. Old Mutual survived the previous period of hyperinflation and adapted to the new economy, which is informal. By nature the informal market is not captured by economic indicators such as GDP, implying that economic growth has not been accurately measured in the recent past,” said Bam.
Sanlam also has exposure in Zimbabwe. It indirectly holds 40% in Zimnat Life through Mauritius’s Masawara Investments. It also has a 40% stake in Grand Reinsurance through Masawara Investments. On top of insurance, Sanlam offers credit and banking in that market via associated companies.
Although the insurer does not indicate how much of its emerging market division’s profit comes from Zimbabwe,  it says that market has exceeded the group’s expectations since its inclusion in Sanlam’s results in 2016. In the first half of last year, Zimbabwe increased its contribution to the Sanlam Emerging Market’s net result from financial services by 25%, second only to Nigeria.
Performance of financial stocks in times of crisis could be another reason why companies are prepared to sit out the tough times. The market capitalisation of the banking sector on the Zimbabwe stock exchange is up 7% since the beginning of this year. Nyaungwa points out that even during the week of fuel-price protests, on the two days that the market traded, banking stocks went up 6% and 4%. Banking stocks continued adding gains when trading resumed the following week.

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