Friday, December 3, 2021

Normalcy in Zim hurts Kingdom Bank operations in Botswana

Zimbabwe’s return to political normalcy has not been all good news for Botswana and to follow the reasoning of Kingdom Bank Africa Managing Director, Sibonginkosi Moyo, is partly responsible for the retrenchment of employees that happened as recently as last month.

At the height of the stand-off between ZANU-PF and the Movement for Democratic Change, NGOs operating in the country found themselves in a bind when the Zimbabwean government froze their money. According to Moyo, this situation led to the Botswana operation of his bank being used as a conduit for the funds of the international donor community based in Zimbabwe.

“We became a retail outfit that even paid salaries,” he says.

Around this time, Kingdom would get, say US$10 million, process some 1000 transactions and be paid transaction fees as well as exchange-rate income. However, with the political situation having normalised, such money is now being sent directly to Zimbabwe, Kingdom has been cut out as a middleman and no longer earns money it did from handling those many transactions.

“Those activities are no longer there and the structure of the bank needed to be realigned. The initial cost structure was limited to supporting the clientele we had but with the Zimbabwean situation having improved we had to change,” Moyo says.

Part of the re-alignment entailed retrenching staff because as he says, the wage bill was not sustainable. The first batch left in September last year and the second, which included managers, left last month. According to Moyo, the process was partly influenced by the advent of a new investor who, at this point, is conducting due diligence that should be finalised in June this year. He says that in order to make itself attractive to investors, the bank had to trim its staff down to the right size because a bloated wage bill would have had the effect of “scaring away investors.”

While the NGO deal may have been the silver lining of the political turmoil in Zimbabwe, there was still a dark cloud that hovered over the bank. Moyo says that the fact that they are a Zimbabwean bank undercut their capacity to raise funding because of perceived links to the government of Robert Mugabe. Some potential clients, he adds, were unwilling to deposit their money with the bank because they feared that “we would give it to the Mugabe regime.” Compounding the problem were “stringent exchange controls” prevailing in Zimbabwe.

“That affected our capacity to grow business,” he says.

The situation has changed. With the international community now being positive about Zimbabwe, AfrAsia Bank Limited of Mauritius has acquired acquire a 35 percent equity in Kingdom for US$9.5 million.

Away from the Zimbabwean situation, Kingdom has also not fared well with the Botswana government and Batswana clients. Its subsidiary called Kingdom Finance, which offered purchase-order financing, invoice discounting, project financing and guarantees has had to scale down its operations and as a result, retrench staff. Moyo says that Kingdom Finance’s model was based on the understanding that being the largest consumer of services and products in the country, the Botswana government would participate in these transactions. However, Kingdom later learnt that it did not qualify because it was an offshore bank. Moyo says that dealing directly with clients has proved problematic because the default rate got high and the recovery process too burdensome and cumbersome to deal with. The maximum amount that Kingdom Finance can lend is now limited to P150 000 per client and Moyo says that the volume of business has since dropped because most of the funding requirements are for transactions above the limit.

While the Botswana Confederation of Commerce, Industry and Manpower takes up the issue of exclusion of factoring companies with the government, Moyo says that Kingdom Finance continues to operate but with skeletal staff.

“From a business perspective, we have had to rationalise the cost structure,” he says.

Despite all these challenges, Moyo maintains that Kingdom meets the minimum capital requirements set by the Bank of Botswana (BoB). He reveals that the bank’s officials met those from BoB on Thursday for their scheduled annual review and that existing shareholders have just put in an additional injection of US$1.5 million dollars and another such is expected after negotiations with incoming strategic partners are finalised.

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