banking sector 13.09.10.jpgBy Luckmore Safuli

The pending entrance of three additional banks into the local financial sector as a result of the unbundling of the Zimbabwe Allied Banking Group (ZABG), has raised questions on the ability of the sector to absorb more banks and the ability of the institutions to survive, given the depressed operating environment

The local banking industry is still trying to find its feet following the introduction of the multi-currency regime which has seen most banks facing recapitalisation challenges as well as difficulties in attracting significant deposits.

The relicensing of Babican, Royal and Trust bank following the ongoing disbundling of ZABG, has put the financial sector at the spotlight.

Economic analyst, Mr. Willie Ganda believes the re-entrance of the three banks will result in increase in competition which can subsequently lead to competitive rates.

“New banks are likely to have an advantage over the existing institutions as they are likely to come in with new cost effective structures which can be relevant to the obtaining operating environment,” Mr Ganda said.

The coming on board of the three financial institutions will also mean that the country will have a total of 29 banking institutions which will have to compete for the same market.

Some observers have argued that the country is overbanked, hence the need for mergers and acquisitions to create solid institutions.

However, Bankers Association of Zimbabwe President, Mr. John Mushayavanhu insists that the country is not overbanked and feels the recently licensed banks need to put in place cost effective measures as well as tap into other sectors such as the informal sector to operate viably.

“We welcome the re-entrance of the three banks as they are likely to boost deposit base and increase competition. The country has a population of more than 12 million people with over 4 million estimated to be unbanked. There is need to tap into that sector by coming up with appropriate products,” said Mr Mushayavanhu.

Along with Barbican Bank Limited, Royal and Trust were lumped into ZABG in 2004 after supposed detection of incurable operational defects, but the successor project, owned by government through Allied Financial Services Limited (AFS), faced viability challenges including mounting debts.

With the unbundling of the ZABG which will pave way for the reopening of the three banks reported to be at an advanced stage, stakeholders are anxious to see how the financial institutions will survive in the present operating environment.