LAST week, Shelter Afrique Development Bank (ShafDB), a Pan-African housing financier, extended a US$15 million credit line to CBZ Bank. The funds are earmarked for the construction of residential housing units and mortgage origination. Speaking at the signing ceremony, CBZ Holdings group chief executive officer, Lawrence Nyazema (LN), highlighted the lack of long-term mortgage financing as a significant impediment to economic growth. Our senior business reporter, Melody Chikono (MC), spoke with Nyazema, who also serves as the president of the Bankers Association of Zimbabwe, to discuss this and other pressing issues.Below are excerpts of the interview:
MC: You bemoaned the lack of long-term mortgage finance. From a bankers’ perspective, can you take us through what the real issues are?
LN: The basic model is for you to have long-term funds. The biggest provider of long-term funds is the pension industry. The pension industry generally provides long-term funds because when you start working, let us say at 25 or 26 years, you then go into investments (through pension) that will mature at the end of your work life.
That means the pension industry must create assets that are 25 and 30 years old. But you will be aware that in Zimbabwe, our pension industry has suffered from hyperinflation.
The first bout of hyperinflation, the one that ended with dollarisation in 2009, and then the one that we had a few years ago, has taken away confidence.
The average person will tell you that they are better off doing their own investments than investing in a pension scheme because they have lost value. So, if we had a vibrant pension industry, the players in that industry would be investing long-term with banks.
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The banks would use those long-term funds to fund long-term mortgages. So, what we are having to do is to rely on short-term deposits to create these mortgages.
And you will be aware that for the average person, they do not leave money in their account for more than a week. So, you will basically take money that will last a week, and you are converting it into a two-year or a five-year mortgage.
Even when we look at external financiers - even this credit line is a five-year line, the US$15 million is a five-year tenure.
Elsewhere, they will be giving them long-term funding. So, it comes back to the fundamentals of our economy to say we need to stabilise our macroeconomic environment.
We need to have an environment of low inflation where you can save and get real benefits.
I would say we are now on the right course in terms of just stabilising the economy and making sure that people believe in these savings products. But because people have been burnt in the past, it is going to take a bit of time for us to get back to where we were previously and where other countries are.
MC: What has been the impact of redirecting funds on business operations of banks?
LN: We have survived because every day someone is depositing. And the fact that our salaries are staggered, some people start getting paid on the 12th, others get paid on the 1st.
There is a continuous process of people depositing, people taking out, and that is what has kept us going. Otherwise, if we were all being paid on the same day, we would get to a stage where the deposits run out. But, it has obviously limited what we can do as intermediaries in the industry.
If you look at our loans to deposit ratio at industry level, I think it is between 50% and 60%.
In other countries, they lend as much as 90% because they are comfortable, they know those deposits will stay in their accounts.
But we are kind of watching and trying to make sure that when people come to the bank and they want their money, those funds are available.
So, we have higher liquidity buffers and short tenures.
That not only affects housing, but it also affects your industry. When somebody wants to start a factory, you want to import the machinery, you want to put the factory into place before, and it can be a year or two years before you start earning.
So, if you look at Dinson, as an example, they started building, was it in 2020? So, if you come to a bank and you are given a six-month facility, and then you are going to take four years to build your factory, it means in six months’ time, I’m saying repay. But what do you use to repay when you haven’t even put the factory in place?
Obviously, it constrains what our economic players can do, and that is very tight conditions. And part of it will also affect their repayment capacity.
So, at industry level, it is between 50% and 60%, at CBZ, we are roughly around 60%.
MC: As CBZ, can you take us through your ability to provide USD loans and mortgages given the cash crunch in the country?
LN: So, if you look at our current loan book, we are around US$400 million. Obviously, that would be the largest. That is like 25% that is there in the market. When we started getting to a position where we could not continue lending, that is when we went for lines of credit.
All along, we were not relying on lines of credit.
We were relying on our own customers’ deposits. So, you would be aware that in June, we brought in the US$80 million from the African Export-Import Bank.
We brought in this US$15 million from South Africa… Obviously, that was to say, we had a pipeline of at least US$100 million, and we wanted to make sure that that US$100 million was financed, and we continued lending.
So, we have not been as affected by the liquidity crunch as probably the average player in the market, in that we have the size and capacity to bring in these lines of credit when we require them.
But I have always said when it comes to lines of credit, it will be measured, because it is an external obligation. It is different from me borrowing from another bank locker.
Even this US$15 million, when it falls due, it is in the interest of not only CBZ, but of the whole country to ensure that we pay, and we pay on time.
Because if we default as CBZ, it affects the ability of the next bank to borrow not only from Shelter Afrique, because once it gets out into the public domain, that CBZ has failed to pay Shelter Afrique, other international lenders will also make a call.
MC: Are you still in the market for other lines of credit?
LN: I would say we are largely done for this year. I think we are targeting lines of credit of about US$200 million. We are now on US$155 million, so perhaps we could add another US$20 million. But I keep on saying, we will do it in a measured way.
We can raise significantly more but what it also means is you need to be aware, and you need to be sure that when the time to repay comes, you have generated enough exports for you to be able to comfortably pay.
And when you look at some of these international lenders, whether you are looking at the World Bank, International Monetary Fund, African Development Bank, it is there in the public domain that they have failed to repay at a country level.
That is why we are now working on the arrears clearance programme. Going forward, it is important that we are disciplined, and we make sure that whatever we get, we deploy it diligently and we deploy it to those who have got capacity to repay.
MC: And on correspondent banking, do you have any relations as CBZ?
LN: We do. The biggest one that the market focuses on and talks about is the US (United States). The reason for that is simple. A lot of our imports and exports are in US dollars.
The US banks in general have been on a programme, which is called de-risking. So, they get punished in a big way, whenever they are seen to have flouted regulations. It is not ideal for a bank to be fined a US$1 billion or US$2 billion for infringements.
Because of that, they look at the value that they get from doing business with you and then they look at the potential fines, not only for Zimbabwe, but for most developing countries.
Because our values are small and the potential for fines are high, a lot of them just stay away. To give you an example, something that has been in the public domain, I think Barclays was previously fined, was it £2,5 million (US$3,251 million)?
Standard Chartered Bank Zimbabwe (now FBC Crown Bank Limited) was fined, was it not US$18 million? So, the US bank will look at it and say there is a potential for me being fined, say US$18 million.
What is the value that I am getting from the business that I am doing with this bank in Zimbabwe? If they feel their revenue does not justify the potential fines, they will basically stay away.
So, the only banks that are still doing business with Zimbabwe and developing markets are largely Citibank and Stanchart (Standard Chartered US). So those are the two that have been supporting us either directly or indirectly.
So, in the case of CBZ, they support us indirectly in that we go through bigger banks to do our clearing.
There is still Stanchart in New York and Citibank and I am glad that they are clearing for two or three banks directly in Zimbabwe.