Published: February 6, 2012
Analysts expect increased M&A and fund raisings following rules change.
New capital requirements could see a wave of fund raisings or takeovers in Zambia’s banking sector.
Alexander Chikwanda, Zambia’s minister of finance and national planning, has announced an increase in the minimum statutory capital (MSC) structure for the country’s commercial banks, alongside a six-month rebasing of the kwacha currency.
The MSC shift will require local banks to hold ZMK104bn (US$20mn) in capital and foreign banks to hold US$100mn. Previously, all banks were required to hold US$2.3mn. Chikwanda says the change should increase banks’ resilience to economic shocks.
The change could push many banks to adopt new strategies to shore up their capital, including M&A deals. Some number crunching by analysts at Stockbrokers Zambia, a division of Imara Securities, suggests that as of last October, only six banks operating in Zambia had more than ZMK104bn in capital and reserves.
“From a risk perspective, we welcome an increase in the MSC from the current level of about US$2mn, which is way too low for an economy the size of Zambia,” wrote Stockbrokers Zambia in a January research note.
“The quantum of the increase, however, is huge, and we await clarity from the Reserve Bank around what the time-frame for effecting the changes will be. Timing will be key, and we anticipate that the LuSE will see some corporate actions on the back of this, with listed banks making calls to shareholders to shore up the existing capital base as well as issuing bonus shares, while the international banks will primarily look to their mother companies to make capital injections.”