The Sunday Mail
Enacy Mapakame
Exactly a year ago, Zimbabwe’s biggest banking group, CBZ Holdings Limited, appointed Dr Blessing Mudavanhu as its group chief executive officer. Dr Mudavanhu has decades of international and regional financial services experience with 10 years in New York, United States where he worked for Bank of America.
He also worked as acting group CEO at BancABC in South Africa where he also ran his advisory services firm Dura Capital.
In just one year at the helm, CBZH’s net earnings reached $72 million and the group is looking at boosting income by 32 percent from increased lending. The group also anticipates reducing its non-performing loans (NPL) ratio, which is currently at 15 percent to a single digit figure by year end. Our business reporter Enacy Mapakame (EM) had a chat with Dr Mudavanhu (BM) where they had a wide discussion on his views about Zimbabwe’s financial services sector and CBZH prospects.
EM: Can you give a brief background of the journey you have travelled in business?
BM: I worked for 10 years in the US. I did my PhD in Mathematics in the US and then I studied financial engineering in California. I later joined BancABC. After two years with BancABC I was doing my consulting business, which was around risk analytics, data analytics, to try to use mathematical models to solve business problems. And then now I’m here at CBZH. So, it has been a journey that has taken me home.
EM: What has been your experience so far in Zimbabwe and from your international and regional experiences, how does the country fare in the financial services sector?
BM: Working in Zimbabwe for me is not very different from my experiences in Johannesburg. I was actually not working in South Africa, it was a base. I was working outside South Africa. I’ve had exposure to Zimbabwe since the BancABC days. In New York the markets are very developed and have sophisticated financial instruments. Then when I moved to Johannesburg joining Banc ABC, it was more about traditional banking, which is relationship management; talking to people and things like that.
But when you look at Zimbabwe in comparison to other regional markets, we are ahead. Some of these markets never had mortgages. Markets like Tanzania are less developed and other people there do not have IDs. Right now the Zimbabwean capital markets have gone backwards compared to the 1990s when they were very developed and there was talk about financial auctions, because back then, the markets were sufficiently developed and ready for those instruments.
EM: But why move from a developed market and seemingly lucrative economy to a perceived high risk Zimbabwe market?
BM: This is where opportunities are. Predictability means there are less opportunities, but where there is volatility, there are opportunities to perfect the markets. In those (developed) markets, you just ride the wave, right. But here, you actually have to grow your skills, do something and in the process you find opportunities. So, Zimbabwe is full of opportunities.
EM: And when you look at Zimbabwe and developed markets, you have experienced so far, where are we now and do you think we will get there some day?
BM: We will get there, we may not necessarily reinvent the wheel. But if our companies really do well, they will probably list in New York or London in order to harness resources there. But certainly, the market is smaller now and you have to appreciate and take that into account. Where we lack really in capital markets is a secondary market. Right now you just go to the Stock Exchange, buy shares, but nothing really happens outside the stock exchange. So we need to develop our secondary market, so that you can begin to customise financial solutions, in a more efficient and more targeted way.
EM: Looking at the regulatory framework in Zimbabwe, which areas do you think may be problematic in growth of financial services sector and need tweaking?
BM: When I look at, for instance, the Zimbabwe Stock Exchange regulations, there isn’t any difference from exchanges in Johannesburg, New York or London. Perhaps where we are constrained is regulations around how much you can invest outside. I think we’re still very much constrained even as asset managers, on how much you can actually invest people’s money outside.
EM: CBZ is a significant player in the country’s property sector. What’s your planned investment so far with regards to property development?
MB: We have a big land bank for development of business centres and residential properties and a couple of shopping malls as part of the strategy for the business as we utilise a lot of the land that we have.
EM: In 2017, CBZ won a Government tender to raise US$2 billion for student accommodation and infrastructure at State Universities and other tertiary institutions. What is the update on that?
BM: Part of the challenges faced by universities is accommodation, so this is an area we are also looking at and there are discussions taking place. A lot of universities are our clients and accommodation challenges are not only for students but staff members too need housing. This project has a consortium of banks involved although CBZ is a significant player in this. We just had a meeting with one of the universities over this.
EM: On residential projects, who are your targets?
BM: All the markets. We are also looking at the diaspora market, which will be a crucial way of raising foreign currency. One of our key strategies is to create products that generate foreign currency and diaspora mortgages fit into this.
EM: How much is CBZ Properties’ contribution to group earnings and what are your plans for this business unit in the short to medium term?
BM: It is still low and in terms of revenue, it’s about 10 percent. The bank constitutes a big share of CBZ Holdings. Our aim is for all our subsidiaries to grow not only in contribution to CBZH basket but to be competitive within their respective businesses. CBZ Bank is the largest bank in Zimbabwe, so we also want our insurance business to be in the top five insurance businesses in the country. All our major lines of businesses should at least command 10 percent market share. This is our five year strategy.
EM: How do you intend to achieve that?
BM: Organic growth, where opportunities for acquisitions present themselves for acquisition we will take them up.
EM: What is the size of your loan book?
BM: It is just below $600 million. Our loan book has shrunk because of challenges with non-performing loans we have experienced over the years. We talked about residential mortgages; it is an area we will have to grow aggressively because it’s secured lending. But we also look at unsecured lending for good quality clients. So one of our objectives is to grow our loan book because as you know, banking is really about credit extension.
EM: You have indicated you want to reduce your NPL ratio to a single digit level from the current 15 percent. What is your strategy?
BM: One easy thing to do to get your NPL ratio down is to grow your loan book, because it’s a question of denominator and numerator. If you grow the denominator, the loan book ratio comes down. We want to grow our loan book for two reasons, that we reduce our NPL ratio and to play that important role in credit extension because that’s how the economy will turn around if businesses have access to funding. So, one of the deliberate things we are doing right now is to strengthen our loan origination and our credit risk management processes. It is important to note that we also have to take risk, we don’t want a zero NPL.
EM: Which sectors have contributed more to bad debts?
BM: Agriculture. This is an area where we have experienced high NPLs and there are a number of reasons for instance how our loans have been structured. We think that they have not been speaking to the nature of that business and also our origination standards have been weak in that sector.
SMEs have also been problematic. We need to help them in financial literacy because some of these do not have proper financials, let alone audited. But we are seeing improvements on the SME side as they are willing to learn and various projects are being done to empower them with financial and business management skills.
EM: What can CBZH clients and the rest of Zimbabwe expect from you?
BM: To grow a diversified financial services company that will play a significant and catalytic role in the development of the economy. As a financial services group, we are different from say a mining company that will show you gold nuggets, but we create solutions. One of the things I do every morning is run, this gives you time to think and plan well.
