US embassy considers getting Zimbank and Agribank off sanctions list

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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FM AMEMBASSY HARARE

TO RUEHC/SECSTATE WASHDC IMMEDIATE 4327

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RUEHGV/USMISSION GENEVA 2046

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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)

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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

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