Successful turnaround strategies are not new to Zimbabwe’s largest universal banking concern.
CBZ has gone the distance from being characterized as a bank for crooks to the largest banking concern in the country. The majority of banks in the southern African country adopt the universal banking model instead of the niche or boutique bank model which was once ubiquitous globally.
The universal banking model’s roots can be traced to the promulgation of the Glass Steagall Act on the 1930s which combined the activities of commercial banks and investments banks. Banking houses that adopt this universal banking model aim to be a one-stop financial services shop offering everything from consumer and corporate credit to insurance and investment products.
The trend in Zimbabwe has grown in popularity as a method of meeting regulatory compliance and attaining critical mass. Other banks in Zimbabwe following the universal banking model in Zimbabwe include FBC Holdings Limited and ZB Financial Holdings Limited. Their operations include commercial banking, insurance, microfinance, and securities.
The largest banking concern in Zimbabwe is not a foreign owned multinational.
The largest banking group in the southern African country is a home-grown local banking house with an intriguing history. This institution is now a revered landmark of the banking industry. Two central bank governors are among some of its alumni. Gideon Gono the central bank governor from 2003 to 2013 was its chief executive and the architect of its turnaround. He transformed it from a sleepy and moribund state-owned bank to what it was then described as; “the jewel bank”. The second central bank governor to graduate from its ranks is the current governor Doctor John Panonetsa Mangudya. He too was once its chief executive. If you want to be the head of Zimbabwe’s apex bank, spending some time at CBZ Holdings will stand you in good stead.
CBZ Holdings Limited is large by any measure. It’s listed on the Zimbabwe Stock Exchange and is stock is a darling of the market. It banks all the state-owned enterprises and the bulk of Zimbabwe’s civil service. From about 2009 to date it has consistently produced the highest profits among its peers in the banking industry. Only recently has the bank lost its mantle of the highest profits to another equally ambitious operator Ecobank. The bank was not in its early days as dominant in the market as it is now. It was formed in 1980 as the Bank for Credit & Commerce International. It was originally a joint venture between the government of Zimbabwe and the Bank for Credit & Commerce International. Unfortunately, a combination of poor corporate governance and a loose lending policy in the 1980s nearly saw the bank collapse.
It earned because of its reputation then a rather harsh epithet Bank for Crooks & Criminals International because of its largely delinquent loan book then. The plight of the bank in 1991 prompted the bank to assume total control of the bank and appoint a new management team to clean up its books and to get its act together. The bank was renamed the Commercial Bank of Zimbabwe (CBZ). According to the company’s website “…The first major turnaround occurred in May 1995 when a decision was taken to remove non-performing loans from the normal portfolio of advances. These were placed under the separate entity, Commercial Bank of Zimbabwe Nominees Limited (CBZN). This strategy allowed the more efficient mobilization of financial resources and enabled greater focus on critical issues of banking business and rehabilitation of all delinquent advances.”
From about 1997, the bank began to pursue a strategy of diversifying its business by getting into other areas of financial services. At that time the government took the decision to sell its shareholding to capitalize the bank and reached an agreement to have South African retail banking giant ABSA take an interest in the bank. ABSA in 1997 took a 25% shareholding in CBZ. Apart from ABSA and very impressively the bank also counted venerable financial institutions like the International Finance Corporation as its shareholder with a 15% interest. In the following year the bank was fully privatized when 55 per cent of the company’s shares were floated on the Zimbabwe Stock Exchange on the 29th of June 1998. It was at this point that the bank was starting to grow in terms of market dominance. It was then the third-largest institution in terms of deposits.
history progressively developed from being a credit provider to a fully fledged universal bank.
The bank then became a truly universal bank in 2004 when it adopted a new vision to provide its clients with a one stop shopping experience for financial services. The bank became a subsidiary of a holding company, CBZ Holdings. CBZ Asset Management began trading as Datvest after incorporating in 2005. During the following year 2006 the bank got into the real estate business when it incorporated CBZ Properties. The bank also got into the insurance sector in 2006 when it set up optimal Insurance with other investors. It has added mass to the insurance business with the acquisition of a 31.22% interest First Mutual Limited another listed financial services outfit. In 2007 the bank completed a transaction which saw it acquire mortgage lender Beverly Building Society. This enabled the group to provide mortgage lending to its clients.
As it stands the group now operates an impressive portfolio of businesses which include banking, asset management, insurance, real estate, and agriculture. It is a fully integrated universal bank.
CBZ Holdings’ universal banking structure resembles Type D and involves creation of a holding company which controls affiliates engaged in commercial banking, investment banking, insurance, and possibly other types of financial and non-financial businesses.
This is where the heart of the matter is. CBZ has made a lot of money for its shareholders and it should be a matter of inquiry as to what enabled it to create the kind of value it created for its shareholders over a relatively short period of time. Shares in CBZ Holdings Limited had their longest run from April 2020 when their shares traded for ZWL$ 2.05 and peaked in January 2021 at ZWL$ 107.00 a gain of over 5,200%! Who needs a private money printing machine when all you can do is buy shares in Zimbabwe’s largest banking group?
CBZ Holdings is not the only universal bank in the Zimbabwean banking sector. There are other diversified financial services firms that strictly speaking fit the definition and description of a universal bank like FBC Holdings and ZB Holdings. A unique phenomenon of the Zimbabwean banking sector is that most of the banks go by the acronyms of their full names and not the full names themselves. The two banks previously mentioned did not deliver the kind of share price performance that CBZ did even though their business models are somewhat similar. The period when CBZ shot up astronomically coincided with the time that investors on the ZSE were buying up shares to hedge the value of their portfolios against inflation.
This would partly explain why shares of companies on the ZSE saw their share prices increase well beyond what could be explained by their fundamental economic and financial performance. The shares of the companies on the ZSE at that time had not been repriced as it were to reflect the inflation levels and so were reasonably cheap to buy. It is against this background that external stakeholders and prospective investors need to appreciate that share prices on the ZSE increased and continue to increase not because the companies have become more productive but because of investor sentiment. Still, this explanation would appear to be insufficient in capturing the essence of why CBZ was the highflier and continues to be the highflier of the listed banking stocks in Zimbabwe.
The best explanation for the spike in share price of Zimbabwe’s banking behemoth coincided with the rumored acquisition of a sizeable stake of 30% in the bank by a controversial business tycoon. All the previous factors taken into consideration with this development make it more plausible to appreciate how the share of the bank could rise by such a mouthwatering margin. For its part, the bank has been making serious inroads into the market and looking to chip away at market share traditionally held by multinationals in the financing of international trade. The bank under the leadership of former Wall Street banker Blessing Mudavanhu is said to have opened 2 correspondent bank relationships in the United States at a time when other banks in the market have had their correspondent bank accounts closed because of high country risk.
The bank is in acquisition mode after the completion of the purchase of the stake in First Mutual Limited. There is more to come as this home-grown Zimbabwean banking giant looks to cement its hold on the market and give its shareholders a treat!
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