ZB Financial Holdings Limited, one of Zimbabwe’s oldest financial institutions, made a shock announcement to the market that it was mulling a decision to shut down its mortgage lending unit.
These revelations about the pending decision by the ZSE listed diversified financial institution were capture in an article carried by the Sunday Mail titled, “Crunch time for ZB… Directors mull liquidation and surrendering license.”
It is not difficult to see how a cursory glance at this headline would cause disquiet in the market. The headline gave the impression that the group was troubled and that it was going to surrender its banking license and shut its doors…
- ZB Financial Holdings is considering the decision to surrender its building society license but veteran banker Nicholas Vingirai is having none of it.
- The bank will probably continue mortgage lending from its commercial banking operation without doing so through a standalone mortgage lending business.
- ZB Financial Holdings has been operational in Zimbabwe since 1972. Through the years the company has changed names numerous times from Rhodesia Bank to RhoBank to ZimBank to its current brand name ZB Financial Holdings.
The headline did what it was meant to which was to capture the attention of readers however, to be clear the mortgage lending unit of the diversified financial services group is what the board of directors is contemplating closing.
What is even more surprising from a ZB Financial Holdings Limited standpoint is that the banking conglomerate, earlier in the year, reportedly welcomed an investor with very deep pockets. Politically connected businessman Kuda Tagwirei. It would appear somewhat of cruel irony and a misnomer that a bank with a seriously wealthy investor on its books must close its mortgage lending unit because it cannot raise the minimum capital required by the central bank.
In Zimbabwe, as is common practice in other countries, the central bank prescribes the amount that banks must have on their books as capital. It is a regulatory requirement for a banking license. Banking institutions are required to have a minimum capital of US$ 30 million and building societies or mortgage lenders are required to have minimum capital of US$ 20 million.
According to the Sunday Mail, initially ZB had proposed to merge its banking division with its mortgage lending unit to meet the minimum capital requirement. That effort, however, hit a snag because of an ongoing shareholder wrangle between an investment vehicle belonging to veteran banker Nicholas Vingirai called Transnational Holdings Limited which has a direct holding in Intermarket Holdings Limited which subsequently controls the building society or mortgage lender and ZB Financial Holdings.
Vingirai, through Transnational Holdings Limited, insists that the merger between the bank and the building society/mortgage lender can only take place once the government of Zimbabwe brokered resolution between Transnational and ZB Financial Holdings over what he called the scandalous and fraudulent acquisition of Intermarket by ZB Financial Holdings is fully implemented.
The dispute between the two parties is longstanding and began as far back as 2006. That is about 16 years ago and there really is little prospect of that dispute and subsequent resolution brokered by the government being implemented in time to meet the RBZ deadline.
Origins of the dispute
To understand the shareholder dispute threatening to sink the mortgage lender, it is important to appreciate the key actors in the dispute starting with Nicholas Vingirai. This man is widely regarded as the father of indigenous banking in Zimbabwe.
He pioneered the trend in the early 1990s of black businesspeople venturing into the commercial banking and financial services industry with the creation of Intermarket Discount House.
So good was or is Vingirai at his profession that at its zenith, Intermarket Holdings used to run a secondment program where banking professionals from other countries would be placed with the institution to learn how to run an investment bank and discount house as it were.
- The mortgage lender is failing to meet capital requirements and efforts to merge it with the commercial bank have been stymied by a longstanding shareholder dispute between ZB Financial Holdings and veteran banker Nicholas Vingirai.
- Nicholas Vingirai is the father of indigenous banking in Zimbabwe. He was the first black businessperson to open a bank through his Intermarket Discount House.
- Intermarket Holdings Limited as it came to be known after obtaining a banking license and other financial services businesses experienced trouble during the Zimbabwean banking crisis of 2004 when several locally owned indigenous banks went under.
Vingirai at one point was also a Commonwealth Secretariat money market field expert, according to former Reserve Bank of Zimbabwe governor Gideon Gono.
As his banking operation grew Vingirai became the target of what has been called deliberate skullduggery against successful businesspeople in Zimbabwe. In 2004 after the banking crisis that claimed the scalps of most of the indigenous banks in Zimbabwe Nicholas Vingirai had to leave the country and spent seven years in self-imposed exile after he was charged with contravening the country’s exchange control laws.
He was absolved in 2011 of the charges of externalization of foreign currency however, the government had expropriated his firm Intermarket Holdings in 2006. Since that time Vingirai has been on a crusade to recover his assets which are now in the centre of the dispute. ZB Financial Holdings comprises of assets that belong to Transnational Holdings Limited. For the assets that were annexed from Vingirai, the government duly transferred 22.7% of the shares in ZB Financial Holdings to the veteran banker.
More shares are due to Vingirai’s investment vehicle so that they correspond to the value of Intermarket Holdings at the time that the government took it over. In July 2021, 11% of ZB Financial Holdings shares were supposed to be transferred to Transnational Holdings Limited. This is pending. The dispute has been long drawn out with all kinds of proposals being made, ranging from demerging Intermarket from ZB to allocating shares to the veteran banker.
The investment case for ZB Financial Holdings Limited
Despite the ongoing shareholder dispute and the need to meet minimum capital requirements, ZB Financial Holdings Limited is a well-run bank. The Zimbabwean economic and business environment remains challenging characterized by high inflation, high unemployment, liquidity crunch, and a depreciating local currency. The company reported a set of financial results that showed growth on all fronts:
For the six months ending 30 June 2022, the Group posted inflation-adjusted net earnings after taxation of ZW$6.069bn, an increase of 165% over the prior year comparative period whilst in historical cost terms the net earnings after taxation increased by 2,001% to ZW$20.370bn. This performance was underpinned by growth in inflation-adjusted total assets of 13% to ZW$124.811bn (31 December 2021: ZW$110.538bn), and in historical cost terms, total assets grew by 135% to ZW$116.961bn (31 December 2021: ZW$49.850bn). The chairperson’s statement acknowledged that the mortgage lender was the only operation still to meet capital requirements from the central bank. The bank performed well enough that the board even declared a dividend to be paid to its shareholders.
Who is ZB Financial Holdings Limited?
According to the company’s website, the company began its operations as the local unit of the Netherlands Bank of Rhodesia Limited. The company then changed its name to Rhodesia in 1972, Banking Corporation Limited, and Rhobank in 1979. It changed its name once again in 1981 to Zimbabwe Banking Corporation after the Government purchased the majority shareholding.
- Nicholas Vingirai himself was the subject of an investigation into alleged violation of Zimbabwe’s exchange controls. He went into exile in 2004 and returned in 2011.
- Charges against Vingirai were dropped in 2011 after investigations showed no violations of the said exchange controls. Nicholas Vingirai’s ordeal was, according to the former central bank governor, an elaborate scheme to persecute the veteran banker.
In 1989, the company’s directors undertook a restructuring exercise to bring all subsidiaries and associates under one investment and holding company, Zimbabwe Financial Holdings Limited. The restructuring allowed the Bank to concentrate exclusively on providing commercial banking services to the public.
The new holding company was ideally placed to explore other profitable business activities, which were not previously possible because of restrictions placed on the Bank’s investment activities in the Banking Act. The acquisition of several subsidiaries over the years allowed the Group to offer a wide range of services which include commercial and merchant banking, hire purchase and leasing as well as trust and executor services. On October 30, 2006, the Group adopted a new monolithic brand and formally changed its name to ZB Financial Holdings Limited.
This change was also meant to coincide with the merger with former Intermarket Holdings units (Intermarket Bank, Intermarket Building Society, Intermarket Reinsurance, Intermarket Life and Intermarket Bank Zambia), which units have since adopted the ZB brand.
This resulted in ZB Financial Holdings becoming one of the most diversified financial services shares on the Zimbabwe Stock Exchange.
Mortgage lending sunset?
ZB Financial Holdings Limited is not the banking institution to call time on the building society model. CBZ which is Zimbabwe’s largest lender by assets also merged its banking business with its building society to establish a bigger commercial banking operation, the firm said yesterday.
- While in exile, Nicholas Vingirai’s business, Intermarket Holdings Limited was taken over by ZB Financial Holdings Limited and ever since his return in 2011 the two parties have been at loggerheads about how to make the veteran banker whole for his assets that the bank annexed.
- ZB Financial Holdings has considered demerging Vingirai’s assets through a deal brokered by the government or issuing shares commensurate to the value of his Intermarket Holdings Limited company. The transaction is pending and has been so for years.
Company secretary Rumbidzayi Angeline Jakanani said the CBZ Holdings board had given the nod to a proposal put forward in February to tie up CBZ Bank, and CBZ Building Society. CBZ Building Society will fizzle out of Zimbabwe’s landscape this month-end, paving the way for one giant commercial banking operation. CBZ took over the assets of the Beverley Building Society in 2007. The amalgamation is going to be effected through the consolidation of all assets, liabilities and equity of CBZ Bank Limited and CBZ Building Society into one entity, CBZ Bank Limited. This is according to a report carried in News Day on October 5, 2022.
This begs the question of the viability of building society as a business model to start with. Is it viable to have a mortgage lending unit that is autonomous within a universal bank? Developments from Zimbabwe’s largest and foremost financial services firms seem to suggest otherwise. The building society model appears to be antiquated and outmoded, at least within the context of the Zimbabwean mortgage market.
According to Investopedia, “A building society is a type of financial institution that provides banking and other financial services to its members. Building societies resemble credit unions in the U.S. in that they are owned entirely by their members. These societies offer mortgages and demand-deposit accounts. Insurance companies are often major supporters.”
The Zimbabwe housing market is unique in the sense that reports from government and real estate entities suggest that there is a housing backlog in Zimbabwe of no less than one million housing units. Some estimates of the backlog range from as high as 1.6 million to 2 million housing units. It is, therefore, inconceivable that given the extent of the need, banking institutions are failing to write the necessary loans and extend the necessary credit to finance this huge backlog.