ANNUAL REPORT 2012 TABLE OF CONTENTS Governor’s Foreword............................................................................................................5 Deputy Governor’s Foreword ...............................................................................................6 Senior Division Chief’s Foreword .........................................................................................7 CHAPTER ONE: OVERVIEW .................................................................................................9 MACRO-ECONOMIC DEVELOPMENTS ...........................................................................9 Global Developments… .......................................................................................................9 Domestic Developments…...............................................................................................10 ARCHITECTURE OF THE BANKING SECTOR ..............................................................14 OWNERSHIP STRUCTURE ......................................................................................................14 CHAPTER TWO - MAJOR DEVELOPMENTS IN THE BANKING SECTOR ............................16 INTERNATIONAL REGULATORY AND SUPERVISORY DEVELOPMENTS ...............16 Revised Basel Core Principles For Effective Banking Supervision… .....................................16 Basel III: A Global Regulatory Framework ...........................................................................16 REGULATORY AND SUPERVISORY DEVELOPMENTS IN ZIMBABWE ....................17 Minimum Capital Requirements… .......................................................................................17 Microfinance Bill… .............................................................................................................17 DEVELOPMENTS IN THE BANKING SECTOR ..............................................................18 Licensing .........................................................................................................................18 Conversion of Banking Licences .....................................................................................18 Cancellation of Licences..................................................................................................19 Curatorships… ..................................................................................................................20 Mergers and Acquisitions….............................................................................................20 Supervisory Co-operation… ............................................................................................21 Mobile Banking Initiatives in Zimbabwe… .......................................................................22 DEVELOPMENTS IN THE MICROFINANCE SECTOR ..................................................24 DEVELOPMENTS IN THE ASSET MANAGEMENT SECTOR .......................................26 CHAPTER THREE: STATUS AND PERFORMANCE OF THE BANKING SECTOR ................28 BALANCE SHEET STRUCTURE .....................................................................................28 SECTORAL ANALYSIS ....................................................................................................38 Commercial Banks...........................................................................................................38 Merchant Banks.................................................................................................................44 Building Societies ..............................................................................................................48 Asset Management Companies ..........................................................................................51 Microfinance Institutions .................................................................................................53 Introduction… .....................................................................................................................53 Architecture of the Microfinance Industry… .......................................................................54 Performance of the Microfinance Sub-Sector…..................................................................54 CHAPTER FOUR - OUTLOOK .............................................................................................58 APPENDICES ......................................................................................................................61 2 Vision of Bank Licensing, Supervision & Surveillance Division To become an effective, efficient and dependable regulatory and supervisory authority for the financial sector, supportive of economic development in Zimbabwe. Mission of Bank Licensing, Supervision & Surveillance Division To promote and maintain the safety and soundness of the financial system through proactive and rigorous regulation and supervision, in line with international best practice. Objectives of Bank Licensing, Supervision & Surveillance Division The objectives of the Division are to: enhance and maintain the safety and soundness of the financial system through effective risk-based supervision; periodically review regulatory and supervisory policies and procedures in line with international best practice and changes in the macroeconomic environment; promote public confidence in the financial system by ensuring a consistent, objective and transparent regulatory and supervision process; minimise moral hazard and supervisory forbearance through taking prompt supervisory action against weak and troubled financial institutions in order to protect the integrity of the financial system; promote sound corporate governance practices and adoption of adequate risk management systems; foster a culture of strict compliance with laws, rules, regulations, policies, procedures, guidelines and international best practice; and build supervisory capacity through structured training and development programmes to enhance the skills base. 3 PURPOSE OF THE REPORT This annual report is prepared in terms of Section 78 of the Banking Act [Chapter 24:20]. The purpose of this annual report is to provide an analysis of the condition and performance of the banking sector in Zimbabwe for the year ended 31 December 2012. This report presents an overview of the supervisory operations and activities during the period under review. 4 Governor’s Foreword 1. The major challenge on the global arena continued to be the Euro-zone crisis which further threatened the global economy to a recession. Risks to global financial stability increased on the back of a weakened outlook for growth and persistently volatile markets, notwithstanding various countercyclical measures instituted to address the challenges. 2. In the sub-Saharan Africa region, economic growth remained generally robust with real GDP outturn for SADC expected to be about 5.3% in 2013. 3. Meanwhile, the domestic economy experienced a slow down in economic activity on account of the deterioration in global and local economic conditions. These adverse developments combined with limited access to offshore lines of credit, compounded the country’s external sector position with ramifications on the banking sector. 4. During the year, the banking sector experienced a number of challenges including persistent market illiquidity, asset quality vulnerabilities and limited lender of last resort facility, among others. 5. The Reserve Bank, in collaboration with other stakeholders, is making conscientious effort to address these macroeconomic challenges. 6. On the supervisory front, the Reserve Bank continued to enhance its supervisory practices to ensure the banking sector remains safe and sound. 7. I would like to take this opportunity to thank all stakeholders for their contribution and continued support in ensuring a stable financial sector. Dr. G. Gono Governor 5 Senior Division Chief’s Foreword 1. The Reserve Bank continued to undertake its core mandate of promoting a sound banking system through its various supervisory methodologies. 2. There were 23 operating banking institutions as at 31 December 2012, down from 26 as at 31 December 2011, under the supervision of the Reserve Bank. 3. One banking institution was placed under curatorship following a determination that it was operating in an unsafe and unsound manner, while two others voluntarily surrendered their licences after failing to meet the minimum capital requirements, in line with provisions of section 14(4) of the Banking Act [Chapter 24:20]. 4. There were 150 microfinance institutions under the supervision of the Reserve Bank as at 31 December 2012, up from 146 in 2011. Reserve Bank cancelled licences of five (5) microfinance institutions following on-site examinations which determined that they were engaging in illegal deposit taking activities. 5. The on-site examinations on banking institutions conducted by the Reserve Bank revealed major weaknesses including poor corporate governance practices, inadequate capitalisation and chronic liquidity challenges among others. 6. In an endeavour to strengthen the financial intermediation role of the sector, the Reserve Bank has increased the minimum capital requirements for banking institutions. As at 31 December 2012, a total of 14 banking institutions were in compliance with the 31 December 2012 minimum capital requirements, whilst five banking institutions had made significant progress towards compliance, in terms of the credibility of their capitalization plans. Two banking institutions