The Zimbabwe Banking Opportunity

1. Strictly private & confidential Ndaba Moyo ndaba@interfincap.com moyondaba@gmail.com Zim :+263 772 125 190 S.A :+27 83 296 4825 Rufaro Zengeni rzengeni@interfin.co.zw rzengeni@gmail.com Zim :+263 772 513 242 INTERFIN GROUP The Zimbabwe banking opportunity December 2010

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4. It is led by a Team of seasoned bankers;

7. Altfin offers cut-edge product that suits the need of its clients offering specific required products such as but not limited to, travel cover to both members and non-members travelling outside their country and student cover for those studying outside the country of their origin, thus it is the ultimate health insurer for families and organisations;

8. Interfin Securities is a member of the Zimbabwe Stock Exchange and a formidable player in the Zimbabwean financial services industry.

9. The company started trading in 1996 as Msasa Stockbrokers and is involved in stock market trading, investment advisory services, investment research and safe custodianship.

11. 6 Fueling enterprise and innovation requires a stable, modern, transparent, capitalized, reliable banking sector

12. 7 Zimbabwe’s banking sector is currently enjoying an unprecedented period of stability. With increased confidence the stage is set for a period of remarkable growth, consolidation, and acquisition. Financial services are deepening and getting more sophisticated.

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14. Table of Contents 9

15. Section 1Background to Zimbabwe’s banking sector 10

17. Vehicle and asset finance;

20. According to the 2010 Mid Year Monetary Policy Statement, the country has 26 banking institutions made up of 15 commercial banks, five merchant banks, four building societies, a savings bank and a micro-finance bank. As such Zimbabwe has a fragmented banking sector where only 5 banks control 90% of total deposits leaving the remaining scramble for very small and potentially unsustainable numbers12

21. Section 2The Zimbabwe Banking Sector 13

24. The main banking products can be summarised below:15

27. Loans grew ahead of Deposits at 622%.

28. Zimbabwe Loans to Deposits ratio in line with comparable figures in neighbouring countries despite widely held notion that Zimbabwean Banks are too thrifty with lending. 16

30. An average tenor of the lending of about 180 days: though an improvement from between 30 and 90 days in January 2010, this still does not meet long term borrowing requirements for capital expenditure which required in the country’s reconstruction.

31. Loans and advances reasonably diversified across economic sectors though manufacturing, Distribution and Agriculture have been the more important sectors.

32. Lines of credit have increased marginally from US$205 million in July 2010 to US$273 million in September 2010 according the Minister of Finance during hos budget presentation speech. Afreximbank remains the major financier with disbursements of US$156 million on facilities of US$299.6 million.

33. This increase in the lines of credit albeit marginal represent a growing confidence in the in the country’s recovery path.

34. The level of loans of advances falls short of the demand for capital in the economy which is constrained by the liquidity challenges and high costs of funding at between 13 – 20% . Distribution of Loans and Advances, September 2010 Market Shares by Loans and Advances

36. Deposits currently mainly short term and there is a shortage of instruments on the Money Market.

38. The inter-bank cheque system recorded a total of 138 000 cheques amounting to US$34 million, processed through the Harare and Bulawayo Clearing Houses from January to October 2010. Given a population of 13.5 million people this figure is laughable but can be attributed to the regulations governing the use of cheques where the threshold for the maximum amount issued by individuals is US$500.

39. A cumulative total of 2 million card transactions valued at US$210 million were undertaken for the period January to September 2010. Of this amount, ATMs constituted 84%, while Point of Sale (POS) represented 16%.

40. Nonetheless, card values increased by 54% from US$30 million in August 2010 to US$46 million in September 2010, whilst volumes increased by 2% from 279 000 to 285 000, during the same period.

41. The market is not making use of plastic money and innovative solutions in this segment present an opportunity for players to increase their market share and capture untapped profits.

42. A cumulative 373 000 mobile and internet transactions valued at US$165 million were processed from January to September 2010. Therefore mobile and internet banking represent a largely untapped market.19

44. This amount, although small relative to the required resources, is expected to stimulate inter-bank activity and facilitate increased advances of credit by banks. Furthermore, the function should result in reduced cost of borrowing through risk reduction associated with this monetary policy tool.

45. Treasury has promised to extend additional resources for this function in line with its capacity and upon satisfactory utilization of this initial tranche.

46. The Reserve Bank also scrapped statutory reserve requirements giving banks more room to extend credit to various key sectors of the economy at more reasonable interest rates.

47. However, the minimum capitalization requirement continue to pose challenges to the smaller undercapitalized banks to the extent that mergers and /or acquisitions could be resorted to.20

48. Section 3The Opportunity 21

50. Total consolidated assets exceed US$1.1 trillion, and compare favourably with other emerging markets like India with US$1.2 trillion, Russia in excess of US$1 trillion. Africa is expected to grow even faster on the back of its arable land as demand for food continues to grow. As a country we are well poised to grow even faster against a well developed infrastructural system that has been tried and tested.

51. Although Zimbabwe’s Banking sector has been said to be overbanked in many circles with numerous Banking institutions, the sector remains attractive because of the gap in the market for an optimal and efficiently capitalized bank equipped with modern systems and first world products.

52. The High number of undercapitalized Banking institutions means that the sector presents a number of acquisition opportunities that strong institutions can profitably exploit both in the medium and long-term;

53. The country’s unbanked community present an opportunity for innovative banking products that could be tailor made to attract these said communities i.e. mobile banking, card transactions;

54. On the back of the unprecedented growth of the telecoms sector penetrating into remote areas, the banking sector is presented with opportunity to reach out and address the needs of its unbanked members of the community including rural communities where it has traditionally been difficulty to set up branches as it was either not cost effective or hindered by infrastructural and system challenges.

55. Whilst only about US$2 billion has found its way into the banking system an estimated US$5 billion is said to circulate within the economy primarily in the informal sectors of the economy. 22

59. Water and sanitation programmes in the country’s local authorities estimated at US$1.5 billion

61. In this regard interest has grown in Africa and as can be seen on the FAO: Current and Potential Arable Land Use in Africagraph below showing the immense potential in Africa and more specifically in Southern Africa.