The United States embassy said though sanctions on Zimbabwe which affected two banks in which the government had a stake, Agribank and Zimbank, were highly effectual, it was considering recommending that the two banks be removed from the sanctions list because the sanctions were also hurting the banks’ largely rural bases.
Agribank had 53 branches while Zimbank had 51.
Another reason the embassy felt the lifting of sanctions was justified was that the Ministry of Finance which effectively owned Agribank, and the Ministry of Labour which was the major shareholder of the National Social Security Authority that held the majority of shares in Zimbank, were both under Movement for Democratic Change ministers.
The embassy said with these power shifts the two MDC ministries would have majority shareholder control of ZB Bank, and the Finance Ministry would have 50 percent control of Agribank.
Besides, Biti has stripped central bank governor Gideon Gono of most of his powers. He was no longer able to provide cheap money that was being abused.
Full cable:
Viewing cable 09HARARE284, DELISTING ZIMBABWEAN BANKS WORTH CONSIDERING
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Reference ID |
Created |
Released |
Classification |
Origin |
VZCZCXRO8791
OO RUEHBZ RUEHDU RUEHMR RUEHRN
DE RUEHSB #0284/01 0931155
ZNY CCCCC ZZH
O 031155Z APR 09
FM AMEMBASSY HARARE
TO RUEHC/SECSTATE WASHDC IMMEDIATE 4327
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHAR/AMEMBASSY ACCRA 2757
RUEHDS/AMEMBASSY ADDIS ABABA 2879
RUEHRL/AMEMBASSY BERLIN 1325
RUEHBY/AMEMBASSY CANBERRA 2144
RUEHDK/AMEMBASSY DAKAR 2500
RUEHKM/AMEMBASSY KAMPALA 2927
RUEHNR/AMEMBASSY NAIROBI 5368
RUEAIIA/CIA WASHDC
RUZEJAA/JAC MOLESWORTH RAF MOLESWORTH UK
RHMFISS/EUCOM POLAD VAIHINGEN GE
RHEFDIA/DIA WASHDC
RUEHGV/USMISSION GENEVA 2046
RHEHAAA/NSC WASHDC
C O N F I D E N T I A L SECTION 01 OF 03 HARARE 000284
SIPDIS
AF/S FOR B. WALCH
STATE PASS TO TREASURY/OFAC
DRL FOR N. WILETT
ADDIS ABABA FOR USAU
ADDIS ABABA FOR ACSS
STATE PASS TO USAID FOR J. HARMON AND L. DOBBINS
STATE PASS TO NSC FOR SENIOR AFRICA DIRECTOR MICHELLE GAVIN
E.O. 12958: DECL: 04/03/2019
TAGS: PGOV PREL ASEC PHUM EFIN ZI
SUBJECT: DELISTING ZIMBABWEAN BANKS WORTH CONSIDERING
REF: HARARE 266
Classified By: Ambassador James D. McGee for reason 1.4 (b) and (d)
——-
SUMMARY
——-
¶1. (C) Post recommends consideration of removing Zimbabwean
banks the Agricultural Development Bank of Zimbabwe
(“Agribank”) and ZB Financial Holdings and its subsidiaries
(collectively “ZB Bank”) as Department of Treasury Office of
Foreign Assets Control (OFAC) Specially Designated Nationals
(SDNs).
¶2. (SBU) In meetings with senior management of the two
OFAC-listed Zimbabwean banks, Agribank and ZB Bank, officials
candidly discussed the degree to which OFAC listings have
impaired their banks. Able only with difficulty to engage in
dollar-denominated transactions in a dollarized economy,
Agribank and ZB Bank are hemorrhaging customers, leading to
cuts in staffing and a reduction in operations.
¶3. (SBU) Though highly effectual, OFAC listings are also
having unintended consequences as they limit Agribank’s and
ZB Bank’s large rural customer base from accessing U.S.
dollars and degrade the overall reputation of the Zimbabwean
banking sector. Delisting these banks would help free the
sorely-needed lines of credit from the international banking
community that are necessary to rebuild Zimbabwe’s economy.
While Agribank and ZB Bank may have been involved in past
abuses via patronage schemes funded by the Reserve Bank of
Zimbabwe (RBZ), the present reduced authority of the RBZ
mitigates this risk. Also, the transfer of control of the
Ministry of Finance and Ministry of Labor to the MDC will
increase oversight of Agribank and ZB Bank through their
large shareholdings and their board presence. END SUMMARY.
—————————————
OFAC-Listed Zimbabwean Banks Struggling
—————————————
¶4. (SBU) ZB Financial Holdings and its subsidiaries ZB Bank
and ZB Holdings (“collectively ZB Bank”), and the
Agricultural Development Bank of Zimbabwe (“Agribank”), were
listed on July 25, 2008 by OFAC as SDNs, and consequently are
struggling to maintain banking operations and retain
customers. Prior to widespread dollarization of the
Zimbabwean economy, ZB Bank and Agribank sustained their
businesses using primarily the Zimbabwean dollar. However,
they are now unable to satisfy clients’ U.S. dollar-based
needs and are persistently losing customers to the
competition.
¶5. (C) Agribank CEO Sam Malaba told poloff on March 19 that
limited access to U.S. dollars had forced the bank to sell
properties for liquidity, put a portion of staff on unpaid
leave, and would lead to closure of some bank branches.
Agribank has also been unable to make payments to
international providers for computer services to facilitate
SWIFT bank-messaging systems or even for basic Microsoft
software products.
¶6. (C) ZB Bank faces these same challenges, and CEO Elisha
Mushayakarara told us his bank is also being forced to scale
QMushayakarara told us his bank is also being forced to scale
back operations to reduce costs. ZB Bank currently has US$6
million frozen in offshore accounts.
¶7. (C) At our request, both ZB Bank and Agribank provided us
with lists of customers who had left them for other banks.
HARARE 00000284 002 OF 003
We spoke with tobacco exporter Greg McDonald, a longtime
former ZB Bank client and Embassy contact, who confirmed that
he had switched his business to a South African bank because
ZB Bank was unable to process U.S. dollar payments to his
tobacco growers. Tony Jordan, CEO of Burco Zimbabwe and
executive committee member of the American Business
Association of Zimbabwe (ABAZ), also ceased to bank with ZB
Bank after OFAC froze a payment from Hewlett Packard that had
been directed through ZB Bank.
————————————
The Broader Impact of These Listings
————————————
¶8. (SBU) Agribank and ZB Bank both have extensive retail
banking operations throughout the country. Agribank has 53
branches and ranks third in Zimbabwe in the number of
government employees among its account holders, while ZB Bank
has 51 branches. In many small and medium sized towns, they
are the only banks, which make rural populations particularly
reliant on them. Civil servants, such as school teachers and
health workers, who receive their US$100 allowances deposited
directly into their bank accounts, are facing delays in
withdrawing these funds because Agribank and ZB Bank are
struggling to obtain U.S. dollar cash (reftel).
¶9. (SBU) There are also unintended reputational and lending
costs applied to the entire banking sector through these
listings. Paul Brien, the chief investment officer at local
CBZ Bank, told us that the listings had tarnished the image
of all Zimbabwean banks and some clients had steered their
business to non-Zimbabwean banks out of concern that other
local banks might be targeted. He added that, though only
partially a consequence of the listings, higher borrowing
rates and limited credit availability had been an issue for
all Zimbabwean banks as international lenders apply higher
risk ratings to Zimbabwean banks.
———————————-
Agribank and ZB’s Government Links
———————————-
¶10. (SBU) Both Agribank and ZB Financial Holdings are
majority government owned. Agribank is 50 percent owned by
the Ministry of Finance and 50 percent owned by the Ministry
of Agriculture. ZB Financial Holdings is 42 percent owned by
the National Social Security Authority (NSSA), 32 percent
publicly-owned through its Zimbabwe Stock Exchange listing,
and 26 percent owned by the Ministry of Finance. Through
their ownership stakes, government ministries appoint
directors to the institutions’ boards of directors.
Mushayakarara and Malaba believed that their government
ownership made them the target of OFAC’s financial measures,
and they were attempting to diversify their ownership through
either a private placement or a public sale; however, they
knew their OFAC-listed status would depress their valuation.
Both CEOs stressed that their management and boards were
QBoth CEOs stressed that their management and boards were
composed of banking and industry professionals. (COMMENT:
We believe this assertion to be generally accurate. Worthy
of mention is that the chairman of ZB Bank is Richard Hove, a
ZANU-PF politburo member and himself an SDN. When asked
about Hove’s association with ZB Bank, Mushayakarara said
that the board had long ago requested that Hove not discuss
politics or incorporate his political dealings into bank
affairs. Mushayakarara alleged he had maintained that
posture. END COMMENT.)
—————————————-
More Answerable Now to MDC-Led Ministries
—————————————-
HARARE 00000284 003 OF 003
¶11. (SBU) Under the new government of national unity,
control of the Ministry of Finance is exercised by the MDC’s
Tendai Biti, who has quickly taken steps to hamstring RBZ
Governor Gideon Gono. The Ministry of Finance has one
representative on ZB Bank’s board; the NSSA, which falls
under the Ministry of Labor — also now under MDC leadership
— has two representatives on the board. With these power
shifts, the two MDC ministries will have majority shareholder
control of ZB Bank, and the Finance Ministry will have 50
percent control of Agribank.
—————————————–
Cheap Money No Longer Available for Abuse
—————————————–
¶12. (SBU) Until a few years ago, Agribank lent solely to the
agricultural sector. As such, along with all other
Zimbabwean banks and several large commercial British and
South African banks, it was a significant disburser of highly
subsidized loans to farmers under the RBZ initiated program
called the Agricultural Sector Productivity Enhancement
Facility (ASPEF). The program ostensibly was meant to
invigorate the agricultural sector, but it became a vehicle
for patronage by the RBZ.
¶13. (C) The program was manipulated and cheap money was
distributed not only to productive farmers, but also to
numerous well-connected members of ZANU-PF. Agribank’s
agricultural role may have made it particularly susceptible
to this abuse. Discussions with Trevor Gifford, the
President of the Commercial Farmer’s Union (CFU), supported
that Agribank had been used to distribute cheap funds to
political elites who had seized farms from commercial owners.
(NOTE: The CFU represents commercial farmers who lost farms
or are under threat of losing farms due to the GOZ’s land
reform program. END NOTE.)
¶14. (SBU) The collapse of the Zimbabwe dollar dried up the
ASPEF program. Additionally, fiscal policy under the
inclusive government is based on a cash budget, i.e.
expenditures may not exceed revenue, and the monetary policy
is hard-currency based, precluding off-budget spending.
——-
COMMENT
——-
¶15. (C) Agribank and ZB Bank are desperate to get delisted
and have provided us with customer lists and references to
legitimize their case. They would also likely take heed of
any USG restructuring recommendations that would improve
their chances of delisting. They have made repeated
assurances that they have not been politicized and follow
sound lending practices. As evidence of this, they argue
that they continue to support a large loan book to the
remaining white-owned commercial farms. A first take appears
to confirm thi.
¶16. (C) Delisting these banks would provide a financial
boost to Agribank and ZB Bank, but more importantly send a
signal to the international financial community to extend
sorely-needed credit to Zimbabwe. Additionally, it would
Qsorely-needed credit to Zimbabwe. Additionally, it would
enable the banks to more easily access cash and in turn
enable civil servants in rural areas to access Ministry of
Finance allowances. END COMMENT.
MCGEE
(109 VIEWS)
