Indeginisation of Banks in Zimbabwe

Topics: Bank, Economics, Finance Pages: 7 (1987 words) Published: March 21, 2013

“Indigenising the banking sector, while possible, may not be as easy as the other sector. Unfortunately for the minister (Kasukuwere), banks are special and their interconnectedness makes a systemic crisis contagious and very costly. A disruption at one bank could have a knock-on effect not only on the entire banking sector but the entire economy. Banking is the business upon which all other businesses are based. Banks are at the core of the payment system in the country and play a primary role in the intermediation of savings and investments. Several empirical studies support the view that countries with efficient and strong financial and banking sectors experience higher rates of economic growth.”(The Standar 14 April 2012).The indigenisation of the banking sector is likely to be detrimental to the economy simply because foreign banks provide a lot of benefits to a nation’s business environment which in-turn boosts economic activity and growth. This paper looks briefly at some of the ways that foreign banks can be beneficial to the host country and it is the belief of this author that once the banks are indigenised the host country stands to lose these benefits and economic growth will be negatively affected.

Indigenisation of banks would also reverse the core of Gono’s policies which have forced banks into seeking international partnerships to meet capital requirements which are seemingly disproportionate to the economy.

A coercive change in bank ownership structure would again lead to a weakened banking sector. Indigenising banks in a highly illiquid sector seeking foreign capital seems quite irrational, particularly where the 51% is ceded “on credit”.

It appears there is an increasing trend towards indigenisation across Africa. This is premised on the idea that to achieve its economic potential within global capitalism, African governments will need to redress economic imbalances created by colonialism through economic policies such as indigenisation.

Economic benefits of international banking

Developing countries stand to reap substantial gains from their increased engagement with the international banking industry. Access to international banking increases potential sources of credit to firms and households, enhances provision of sophisticated financial services, and encourages efficiency improvements in domestic banks, although the impact of all of these factors varies depending on the characteristics of banks and the policy and institutional environment of host countries. As a result of these influences, increased international banking in developing countries has helped ease credit constraints on firms, thereby contributing to growth and development.

Foreign banks have improved access to financial services

The ability of foreign banks to frequently offer more sophisticated, higher-quality, and lower-priced services than domestic banks to developing-country borrowers derives from several factors, including access to the technology, the presence of skilled personnel, and the ability to seize opportunities of scale in operational systems already in place in providing services to their domestic clients. For example, in Zimbabwe foreign banks were the first banks to offer ATM transactions and remote banking and that they have greatly sped up the process of loan applications. Garber (2000) notes the ability of foreign banks to offer new financial products such as over-the-counter derivatives, structured notes, and equity swaps. Wooldridge and others (2003) highlight that foreign banks have also supported the development of local financial markets in many developing countries, particularly in local securities and derivatives markets by investing considerable primary dealers in some local government bond markets, and as pension fund managers and swap dealers in other markets. Increased foreign bank presence can also improve the soundness of the financial system by encouraging stronger...
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