Size does matter: CBZ, FML and the game plan to create one big bank to rule them all

Blessing Mudavanhu and Douglas Hoto have no doubt as to what they are trying to create – a big bank with enough clout to take on big projects, and big rivals.

CBZ, Zimbabwe’s biggest bank, has just completed its acquisition of a 36% share of FML, one of the country’s largest insurers and a holder of an expansive property portfolio. As the CEOs of CBZ Holdings and First Mutual Holdings Limited (FML), Mudavanhu and Hoto are leading the tie-up of two of the country’s largest financial institutions.

This transaction is just the start of broader game plan to create a big financial institution with enough muscle to, as the two put it, “drive the national vision”. From banking to wealth management, insurance to property, the new entity will rival Old Mutual.

“One of the things I always say is scale is very important in financial services,” says CBZ’s Mudavanhu.

“We are on the path towards creating a local entity with significant leverage to be able to execute on the significant infrastructure appetite that Zimbabwe has. Unless you have these strong, local institutions, we’re not going to meet the so-called 2023 Vision.”

Under the deal, NSSA sold part of its 66% stake in FML to CBZ in exchange for cash and 9% of CBZ stock. NSSA sold the shares because the size of its previous shareholding, which NSSA held since 2012, violated the regulations of both the stock exchange and those of insurance regulator IPEC.

The transaction leaves NSSA as the largest shareholder in both CBZ and FML.

Infrastructure funding

Together, CBZ’s Datvest and FML have around US$500 million under asset management. What do they plan to do with their clout? Fund big-ticket projects and even expand beyond the borders, they say.

Unable to borrow offshore, Zimbabwe has struggled to fund infrastructure. Mudavanhu believes that building a large local institution will help the economy fund projects better.

“Infrastructure requires huge funding. I don’t think if you combine all the banks in Zimbabwe, you’ll be able to pool a large-scale infrastructure initiative such as a road or a bridge. That’s in part because we don’t have a local large balance sheet,” he explains.

“If you put together all our balance sheets, we’re significantly lower than Zimbabwe’s GDP. What that tells you is you can’t do local projects at a large scale. We think this transaction, and potential future transactions, will create that comfort of a sizable balance sheet.”

As FML CEO Hoto tells it, the idea to create a banking beast came a few years ago.

“A few years back we sat under a tree somewhere, and we decided that Zimbabwe needed a financial institution whose thought process is consistent with national interests and the national development agenda,” Hoto says. “Looking around, we saw where the assets were sitting, and it’s no surprise that there are three entities here (NSSA, CBZ and FML) to execute that mandate.”

Size matters

Hoto, Mudavanhu and NSSA GM Charles Shava

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How big would the post-transaction institution be?

First Mutual Wealth has over US$60 million under management, excluding property investments. When including real estate, it manages about US$180 million. Datvest has US$280 million under management.

CBZ holds 25.64% of all loans in the market, according to central bank data. Part of the evolution plan will include CBZ’s planned acquisition of ZB Financial Holdings, which has a loan market share of just over 5%. CBZ has lodged the proposed acquisition with the Competition and Tariff Commission, according to the regulator’s latest update.

Says Mudavanhu: “Over the last five years, it’s been organic growth for CBZ. We’re also going to try and grow inorganically, such as with this transaction. We will be interested (in further acquisitions) where there are synergies.”

The transaction gives CBZ access to First Mutual’s insurance business, which includes short-term insurer NicozDiamond and reinsurance arms. It will also give CBZ a regional presence. By premium income, FML is the largest insurer in the country, CEO Hoto points out.

He says: “When you combine a strong bank and a strong insurance company, you have the best of both worlds. We want to be able to say ‘we want to build that infrastructure, it’s US$50 million, and we have our own US$30-40 million’. Those who want can join us. This transaction is just the beginning of that journey.”

How effective can a large bank be in Zimbabwe, where the market is now more informal? Hoto says the transaction was, in fact, done with the realisation that the economy has changed.

“The economy of yesteryear, the one we had 20 years ago, is not coming back,” Hoto says. “So we are doing this deal mindful of the fact that we’re going to have to deal with the informal sector, with less structured economic possibilities, and convert them into the new vision that’s inclusive, has national consciousness, and leads to the creation of that so-cherished upper-middle-income economy.”

NSSA’s decision to sell its shares to CBZ was not without controversy. Some critics have questioned why NSSA decided to sell to CBZ.

“The bids were evaluated from a technical and strategic fit, followed by a financial evaluation, and CBZ emerged as the most technically and financially sound bidder,” according to NSSA general manager Charles Shava.

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