Linda Tsarwe Business Correspondent
In a world of occasional financial breakdowns, one tends to wonder what it is that makes a bank successful. Macro-economic challenges such as shortages of liquidity tend to choke the sector as a whole, but some prove to be resilient. NMB has faced a rocky path through its banking journey and the bank today has completely transformed from what it was ten years ago.
However, the fact that the bank is still surviving and ranks as one of the best, regardless of all hurdles along the way, must somewhat mean that they managed to do something right eventually.
The bank was established in 1992, then, the economic environment was stable. However after 2000, things started to take a turn for the worst and the years that followed showcased one of the most volatile period of the country’s economy.
From ever changing denominations to bank regulations that were just as dynamic, it was almost impossible to have a long term business strategy. Amid such an environment, NMB was made worse off after its reputation was dragged in mud. In 2007, the bank was swindled of $4 million.
It is alleged that one of the managers transferred the funds to a personal account offshore. It was extremely trying times for the bank as depositors were heavily prejudiced due to the lack of effective risk management systems at the bank.
There was media frenzy as the credibility of both internal auditors and external auditors came into question. Following the fraud, the Reserve Bank of Zimbabwe (RBZ) suspended the foreign currency dealership licence for the bank.
This meant that the bank was no longer allowed to conduct any foreign currency and foreign currency related business, like their other fellow commercial banks.
Considering how the operating environment was extremely harsh, the licence suspension was just another knock below the belt.
In September of the same year, the CEO Mr David Hatendi resigned, with many claiming that the move was in response to the fraud that had occurred under his nose.
After his resignation, the founder member James Mushore, who was in exile in the UK since 2004, returned to the country in a bid to try and save his legacy.
However, his return was not as rosy as he had to deal with authorities over alleged charges of externalisation. As if NMB had not had a bad year, Mr Van Hoogstraten sold a significant part of his stake in NMBZ.
After having gone through a rocky 2007, 2008 turned out to be relatively better. Beginning of the year, Benefit Washaya was appointed as CEO.
In February, the bank received $2,5 million from an offshore institution to cover for the fraud. This came as a huge relief and eased the pressure that had mounted onto the bank after the fraud.
Furthermore, in June 2008, the foreign currency dealership licence was reinstated after the RBZ was satisfied with the progress made on improving the risk management systems of the bank.
Mr Mushore was then acquitted of foreign currency externalisation charges in August 2008, an event which somewhat closed the chapter of year long furore of bad publicity. From then on, NMB has emerged to be a strong force to be reckoned with. After dollarisation in 2009, all industries including the banking sector were in desperate need to recapitalise.
For banks, it was also crucial to secure cheaper lines of credit, which would enable them to offer cheaper and longer term funding to their customers.
In a bid to recapitalise the group, a rights issue was carried out in 2010, which resulted in the underwriters, African Century, taking up a 28 percent stake.
The rights issue went a long way in injecting fresh capital into the bank. In addition, the group had managed to attract a foreign investor into the business, who has the muscle to continually give financial support to the business.
The endeavours to attract foreign investors did not stop in 2010. In 2013, FMO, the Netherlands Development Finance Company; Africinvest a private equity firm; and Norfund, a Norwegian development institution acquired an aggregate of 27 percent stake in the group.
Total foreign shareholding in the group is currently over 50 percent. In addition, Norfund extended a $1,4 million line of credit to the bank earmarked for SME lending.
However, for financial year 2013, the group made a loss of $3,3 million from a profit of $7,6 million in 2012. As a strategy to clean up their loan book, the bank resolved to write of loans amounting to $12,2 million after the recovery process did not yield the anticipated result.
This resulted in an impairment figure of $16,6 million, which is up by 318 percent from 2012 levels and constitutes 9 percent of their loan book as at December 31, 2013.
The unfolding of events at NMB holdings from 2007 to date is a testimony of business turnaround for the better. Some institutions might not have survived the fraud or in the event that they had, might not have successfully regained public confidence as NMB managed to do.
Furthermore, the bank has showed that the successful of banking lies also in getting the right investors for the business.
Shareholders with a strong financial muscle come in handy at a time like the current where liquidity is scarce. They further assist in extending long term cheaper lines of credit that increases the capacity for the bank to underwrite loans.
Confidence in the people behind the business opens up avenues for other financiers who will not hesitate to extend funding. Placed in such a position it appears as if NMB is headed for success. It should however be noted that regardless of a comfortable capitalisation position as well as a significant level of lines of credit, imprudent lending can bring the bank to its knees.
The mere fact that they have taken such a knock from writing off their irrecoverable debts is a sign that the bank had acquired an undesirable level of poor quality assets.
Having cleaned their balance sheet is however not a guarantee that the bank will not be in the same position a couple of years later.
For comments and feedback: lindatsarwe@gmail.com