Assisting the growth of a private bank in Zambia
Focus Area: Financial Markets
Implementation: ZAMBIA NATIONAL COMMERCIAL BANK
Country: Zambia
Background
With an average GDP per capita of USD 800 MLN in 2008, Zambia is among those countries with low income as classifiedn by the IMF. Although the country is abundant with mineral resources (copper, zinc, etc.), these are mostly exported and benefit only a minority, whom are often foreign. The banking system is mainly intended for the rich population and well established businesses, despite the presence of major South African and international banks branches such as Barclays, Standard Chartered and Standard Bank. The provision of credit represent 10% of GDP, reflecting the weak banking sector of the country.
In this static financial scenery, where banks are reluctant to lend to riskier segments such as SMEs and individuals, Zambia National Commercial Bank (ZANACO) is a commercial bank with local capital, initially created to counter the dominance of foreign banks and serve the local market.
Held by the Zambian government until 2007, ZANACO experienced a long process of privatization, which started in 2002. Rabobank Financial Institution Development BV (RFID), a 100% subsidiary of Rabobank, the Dutch-owned bank established for over 100 years, took over the RFP[1] and now holds 49% of the capital. The Zambian government is committed to shed another 25% in 2008 with ZANACO’s ingress to the stock market scheduled by the end of the year.
The entrance of Rabobank was followed by a change at the highest levels in management and by a strategic repositioning of the company with the aim of increasing loans to key sectors in Zambia: agriculture and mining. ZANACO has the largest agency network in the country and appears best positioned to serve all segments of the population, but in the past the internal management system turned it into an ineffective tool and loans accounted for 2007 represent only 42% of the year balance.
Project description
In January 2008, the FMO and Proparco financed ZANACO with a long-term credit line of USD 25 million, to assist its future growth and particularly to back its long-term loans. Funding was finalised in September 2008.
ZANACO was established in 1969 as a Universal Bank, upheld by the Zambian state as a shareholder. Its foundation results from the privatization program recommended by the IMF. Its assets amounted to USD 660 million at the end of 2008, of which one third consisted of loans.
With Rabobank's expertise in the agricultural sector, ZANACO should be able to improve performance in the financing of this major sector for Zambia.
Objectives
Part of the main goals is to renovate and expand the ZANACO network, so as to give people living in remote areas access to basic banking services. The other part is meant to allow the bank to shoulder its existing credit in USD and also develop the loan supply in foreign currencies and longer maturities. Including to companies exporting in the agro-food sector.
Impacts
ZANACO, the retail bank with more than 200 000 customers (first Zambian bank in terms of deposits), is on the verge of numerous changes. The restructuring of the bank will enable more Zambians to access banking services. It’s important to note that ZANACO charges its lending rate at the bottom line of the Zambian market. On the corporate segment and especially in the agro-food sector, the supply of long-term loans will permit refinancing better equipment, normally purchased with short-term loans and marked by frequent payment incidents.
Schedule and amounts
Start-up: 2008
Funding: line of credit for USD 25 million