Patriotism versus safety - the Banks' challenges

Attention has never been so much on banks as it is now after the worst of the credit crunch. In the UK, MP Vince Cable, the Business Secretary, has recently been showing off threats to punish banks that are not lending, among the threats being a new profit tax on institutions failing to offer credit. In America, the Senate recently approved what is regarded is the ‘biggest overhaul’ of their financial regulations that would, among other things, give the government power to break up a bank that could be viewed as too big and whose failure would threaten the economy. In Zimbabwe, a government Minister was quoted recently saying that banks, foreign especially, that are not lending aggressively should leave the scene and open space for those that would be interested in lending. Equally, the monetary policy statement of Thursday last week bemoaned the high interest rate differential between loans and deposits, which, according to the RBZ, ‘undermines the whole essence of financial intermediation’.

Interestingly, the bankers had earlier hit back on policy makers from their annual conference in Nyanga, ironically stating that their lending is in overdrive and should instead slow down lest they plunge into serious bad debts. This is turning out to be a merry-go-round argument between the deaf and dump, but as always, the policy makers will have their way at the end of the day. Of late the banks in the developed world have come under pressure for their obscene bonus schemes and casino games with derivative instruments that created havoc in the global economy. And indeed the $550 million fine, paltry though, imposed on Wall Street Bank, Goldman Sachs by the US Securities and Exchange Commission on 15 July 2010 for civil fraud in the sub-prime mortgage derivatives did put an icing on how dangerous the casino games can get on a grand scale. Yes, the banks deserve to be disciplined and responsible.

The pressure on banks in Zimbabwe is likely to intensify at a time cash flow management has become the biggest headache being faced by corporates in Zimbabwe, and the continued unavailability of easy credit from the banks will keep tempers near boiling point. The basic argument on why banks should lend is logical. Banks mop most of the liquidity in the economy by accepting deposits and they have to play their part by redistributing these excess savings to those in need of credit to keep the economy running. Therefore when banks decide not to lend, the economy slowly grinds to a halt, and without any doubt, there is a reasonable level of lending expected of the banks for all the deposits they take from the public.

For Zimbabwe banks therefore to say lending is in overdrive when the loan-to-deposit ratio is only 61% can only be viewed as arrogance by the policy makers, and in future such statements can only be avoided to ensure that policy makers are not forced to act, for not acting would be viewed as blessing the same acts being viewed, incorrectly or otherwise, as unpatriotic and insensitive. Without doubt, as the RBZ has highlighted, the policy makers will descend on the charges that banks levy on transactions which are viewed to be ‘punitive’, and faced with a reduction in income from other income, the banks will likely consider lending a better alternative to generate revenue, and until then, the banks will realize that a 61% loan-to-deposit ratio is not ‘overdrive’ after all.

Zimbabwe is in a very delicate transitional phase, and without doubt economic patriotism has to be visible in most decisions that are being taken in all sectors, and the financial services stands right in the middle of the whole process. French President, Nicholas Sarkozy, when addressing the Euro Parliament in 2008, said “I don’t want EU citizens to wake up a few months from now and discover that EU companies belong to non-EU capital which has bought at the lowest point of the stock exchange”. This was at the height of the global financial crisis, and indeed company values were plummeting, and to safeguard their own, the EU was in a drive to ensure that EU companies do not fall into the hands of sovereign wealth funds of the Middle East and China and any other non-EU companies that had cash.

The IMF, which has long stood against wholesale printing of money for quasi-government interventions, became an unusual cheerleader as governments in the EU and US went into aggressive quantitative easing, and in the process of saving banks and the financial system, they threw a lifeline to their own companies. The US pumped over $700 billion, whilst the UK splashed over 850 billion pounds into the system. With the Zimbabwean government broke, devoid of lines of credit and sitting on a mountain of $7 billion in choking debt, the flexibility to engage into quantitative easing antics in helping the private sector doesn’t exist. The whole burden of Zimbabwe’s economic recovery therefore lies on the shoulders of the banking sector, and without much doubt, the banking sector would be expected to take bigger steps in playing its part.

And upon evaluating the acute credit crunch in Zimbabwe at the moment and the need to safeguard our own companies and prevent unnecessary take-overs by foreign capital or the courting of the strategic partners from a point of weakness, the banking sector has a very crucial role to play in ensuring that it plays its part in the recovery process, and indeed the biggest challenge any economy in the world can face is when the biggest banks are foreign banks. Pushing through reforms becomes a difficult task, and indeed some resistance by the foreign banks will not only be based on rationale, but rather the usual ‘head-office’ operating guidelines that will set country exposure limits, and for being foreign, these limits will not prioritize economic patriotism but rather safeguard their own solvency and reputation. And it doesn’t come with surprise that media comments about the Zimbabwean banking sector being in lending overdrive have been attributed to Barclays banks, which, ironically, made about $7 in non-interest income for every $1 it made in interest income for the 2009 full year, a clear sign that it surviving more from other charges and commission than from the normal lending business.

However, careful examination of the Zimbabwean banking model will require that more be done not only from the banks, but equally from the policy makers in setting a conducive operating environment. Acting blindly to satisfy the expectations of the economy can indeed set a dangerous path for the banking sector, more so when no one will be able to provide a lifeline in rescuing them when things go bad. For the love of being labeled patriotic and reasonable, banks can lend generously today but this can come back to haunt them in terms of bad debts. And in retrospect, the constituents of parties pushing banks to lend vigorously today will team up with shareholders and castigate bank management for poor insight and inadequate risk management policies, and sadly, more capital would need to be injected into the banks to cover for credit risk. In giving up dividend to cover for bad debts, and in worse instances of having to inject more cash to meet the regulatory requirements, shareholders will likely pass the stick to bank management, and the recent sacking of BP CEO over the handling of the US oil spill is testimony to how shareholders value their money ahead of any other sacrifice, good or bad.

Although shareholders in Zimbabwe have not been actively involved in general shake-ups of senior management over bungled-up operations largely due to the general blame on the economy and government over the years of high inflation etc, things ought to change, and surely management would need to take more responsibility for their actions going forward. When banks lose money in bad debts, the blame will never be on the bad borrowers, but will stick on management for poor insight and recklessness. Today the whole world blame the banks for poor judgment in propping the global sub-prime mortgage crisis, and many CEOs were sacked from some of the big global banks for being naïve. The same fate will befall Zimbabwean bankers tomorrow should debts turn very bad and write-down skyrocket.

If one evaluates the poor cash flows and serious competitiveness challenges facing Zimbabwean companies today, it is not difficult to see why bad debts are looming, and indeed there are many evident reasons already today that will be cited tomorrow to incriminate bankers for making poor lending decisions. It’s a catch 22 situation, and for the foreign banks, bad decisions they make today may require parent companies to bail them out as the view that they are already rich and healthy might preclude them from any future national bailout fund, if at all some miracle will happen in coming up with such a fund considering the fragility of government finances. And the RBZ has capped it all that it doesn’t have an appetite for more curatorships!

Valuable lesions can be lent from the recent global financial crisis, and that motivates the need for a balanced and very careful pressure in trying to influence bank activities. A prolonged era of cheap credit made indulgence in debt very fashionable. In some countries public and private sector debt-to-GDP levels stood above 300% just before the crisis in 2008, and at that same time, UK household debt as a percentage of disposable income was 160%. When the liquidity tightened, the pyramids collapsed and the fashionable debt came to haunt the very borrowers that had found peace in indulgence, and indeed the asset prices collapsed. The banks were worst affected with massive write-downs, and indeed many collapsed, including the famous Lehman Brothers. As if the losses on bank balance sheets were not enough, the blame quickly shifted to the banks, and indeed rightfully so. Today the global race to have more strict banking regulations is meant to address aggressive risk taking, and part of that is lending ‘recklessly’.

The road ahead is therefore not so easy for the Zimbabwean banks in general since they are now taking the primary risk of Zimbabwe’s economic recovery on their balance sheets. Every company reviving operations after years of stagnation and capital erosion is approaching the banking sector for lifeline, and the banks have to contend with many such experiments, most of whose operating models of yester-year are no longer viable. Those loans will most likely go bad, and if assets of such companies would have been used as collateral, realizing cash out of them would be the biggest challenge when everyone is having liquidity challenge. However the bankable credit needs of this economy are huge, and for the banking sector to justify loan-to-deposit ratio of 61% would be unreasonable, and indeed more reasonable lending should be happening on balance sheets.

The RBZ had not been capacitated financially to perform its market functions until recently and true to the point, the lender of last resort functionality was dead meaning banks’ liquidity was at the mercy of clients who would have borrowed. Only reckless banks would have gambled too much with depositor’s funds by lending more when they wouldn’t be sure of an exit avenue in times of liquidity crunch. On the other hand, the Government is not setting the risk free rate hence the risk is generally perceived to be higher than what it is, and in all logical instances, the banks have the right to keep significant amounts of cash on their balance sheets. If the government is not sure and confident about the future, the probably reason it wouldn’t define the yield curve, who are the banks to disregard such signs and plunge headlong in extending long-term credit? Such banks would probably not be able to live long to see the economy recover and be honored for their efforts in the turnaround process. Now that the RBZ has been capacitated with the seed fund to resume the lender of last resort functionality, more loans should be coming out of bank balance sheets as liquidity risk will be moderated.

Given the vital credit needs for the economy on one hand and the need to balance the credit risks for their continued healthy survival on the other side, banks stand in the middle of the whole turn-around process in Zimbabwe, and indeed their ability to balance the twin objectives will not only reduce undue pressure from policy makers and politicians, but will set a profitable path ahead of them as the economic recovery will kick in faster. Banks should not ordinarily take the wait-and-see approach as it constrains credit flow and hasten recessions, but Zimbabwean policy makers have an equally important role to play in ensuring that the market place has sufficient instruments to safeguard the banks. And until then can we raise expectations on the banks activities and demand better performance. With healthier banks, everyone is happy.

Stability and growth without jobs

The mid-term fiscal policy review read in the week brought about a number of changes, but one fact remains the same, and that relates to the sick economy. Zimbabwe remains the sick man of southern Africa, and although modest growth of 5.4% is expected in 2010, the key economic fundamentals remain fragile, and indeed, as the Minister said, of course without practicing it, business cannot be run on the same old mentality. There is no expectation that significant new jobs will be created, and considering the dismal performance of the vote of credit, the little hope of meaningful employment creation may have been shattered. The budget deficit of 22% at $500million (9% of GDP) points to many programs that would need to be suspended, an unfortunate sign that many creditors will likely struggle to get paid for goods and services rendered to the central government in this current year.

Equally, the wage levels, in particular government wages, will remain anchored below $300 per month as the government cannot create the fiscal space to improve remuneration, and indeed, for fear of being unpopular, the Minister adopted the business as usual approach by not proposing civil service reform targets in line with practical government revenues. At a time wages take a disturbingly disproportionate share of government revenue, and with the obvious expectation that as the government revenue increases, the wage levels will follow suit, failure to take stern measures towards civil service reform is counter-progressive. Without doubt the government will remain in this fiscal fix of being largely consumptive and, unpopular as it sounds today, a civil service reform is what will set the right foundation in unlocking fiscal resources towards areas that will generate growth for the wider economy. The Canadian experience on this will teach us vital lessons. Are we settling on the Mozambican stabilization experience of having low inflation, steady growth, high unemployment and significant donor aid?

At a time the central government is in a big fix, the private sector should expect the road ahead to remain lonesome and at times dangerous. The central government is technically bankrupt, planning to spend beyond its means and therefore the private sector’s hope for a fiscal stimulus, if ever it existed, is impossible. In the past there have been very genuine concerns that strangled private sector growth relating to foreign currency shortages, price controls and a host of other non-progressive administrative interventions. Foreign currency is now abundant whilst the government has taken a back seat in interfering with day-to-day operations of private sector as in the past. With the price controls non-existent, the private sector has to re-look at its business model and understand why it is failing to take-off at the desirable speed.

It’s not a secret that most corporate balance sheets have become septic with debt as most companies plunged into debt with the blind assumption that they would improve production and get more profitable with dollarisation. Unbeknown private sector then, the balance sheets which had been made to look easy by hyperinflation, are rigid and there are other more important aspects that affect competitiveness other than just the availability of foreign currency and absence of price controls. The economy is now navigating an important learning curve, and hopefully many will be able to navigate the curve successfully without plunging into death. The government too has learnt its lessons the hard way. After having placed so much faith on donors to chip in with $810 million to fill the budget gaps, almost nothing came and indeed the shortcoming of its planning and forecasting have come to haunt it.

The private sector, unfortunately, may not have many chances to correct itself and realign balance sheets after making initial grave mistakes. Unlike the government that can decide to ignore its debt overhang of about $7 billion, the private sector would have to meet the expensive debt obligations at the banks and pay creditors without much recourse to softer options.

Although the fiscal policy review has spelt the difficult times ahead, the private sector, interestingly, has to take advantage of the prevailing fragile status of government finances and reshape its balance sheet for a more difficult future. The central government has created a precedent of poor wages and this has shaped expectations to the benefit of the private sector as wages have remained low across the board. Equally, the dollarisation has brought about a very stable exchange rate regime, and indeed the added benefits of relaxed foreign exchange regulations. These two aspects are very important in determining the competitiveness of the private sector during this globalised environment and the private sector has to take advantage of these whilst they still exist because expecting anything more will be placing too much hope on a dying Christmas tree.

On another note, the investment markets will be least expected to react positively. The stock market will most likely remain depressed as the liquidity crunch and poor domestic demand will dominate the last half of the year, issues that will impact negatively on earnings across most of the listed companies. Unlike in the past where all listed companies where blindly labeled “blue chip” and would generally not struggle to get credit, the banks are learning from one mistake after another and more difficult times lie ahead of some of the listed companies in accessing credit. Slowly some of the shares of the listed companies are no longer acceptable as collateral against loans and, worse still, a number of these listed companies do not have readily marketable assets that can be used as collateral. The difficulty in accessing credit will therefore remain pronounced for most of the listed companies, impacting negatively on the ability to raise both short and long-term debt to bolster working capital and refurbish physical capital needs of their balance sheets. Equally, the fact that the government has not raised wages implies that disposable incomes remain weak and this translates to depressed demand for goods and services. Listed banks will not be able to expand their product offerings

Notwithstanding the desire by many homeless Zimbabweans to own properties, the property market will remain depressed as capable buyers remain few on the market. The returns on the property market, a function of liquidity and pace of economic growth, will continue to suffer from the poor performance of the economy. Isn’t it a joke that, of the 235000 civil servants, not even a single one is eligible to qualify for the current mortgage facilities in the market to buy a house in Mbare when one considers their legitimate incomes below $300 per month? This reveals deep seated problems in the structure of the economy, and importantly, the wage restraint calls, to some extent, are misguided when all they will achieve is creating a nation of poor workers without homes of their own. The private sector wages, indexed to some extent on the civil service levels, are not sufficient to ignite meaningful demand in the property market. Resultantly, the short-term returns on the property market, from both the rental yields and capital gains perspectives, will remain depressed for investors looking at cashing in from this investment asset.

The money market is likely to remain attractive for the greater part of the second half of the year. Having been used to hyper-inflation miraculous money-market interest rate levels above 2000% p.a, many investors in Zimbabwe cannot stomach 10% per annum on the money market, and will dismiss it as ‘nothing’. The truth of the matter remains however that these returns, which are currently obtainable on the market, are very attractive considering that these are American dollars. For the blame that the banks are getting for the high cost of credit, part of it should equally go to the big investors on the money markets who are dictating the interest rates. A close look at the banks’ net interest margins reveal that the big money market investors are raking in more returns than the banks, a sign that the money market is very attractive for those with sizeable excess cash. And it is likely to remain so for the greater part of the year as little is anticipated in terms of capital injections unless the much-talked-about diamond sales live to their expectations.

Banks: Shoot long before government does and you are screwed

The mid-term fiscal review is due. So much progress has been made during the past six month towards stabilizing the economy, but more needs to be done not only to keep the momentum, but to quarantine some risks that remain pronounced. Improvements have been registered on all economic fronts and with/without effort; the government has managed to operate within its budget without choice and recourse to meaningful alternative funding arrangements because of the dollarisation.

Thanks to the discipline associated with the inability to finance budget deficits via printing, the tight budget has reduced the incidences of government influences, usually disruptive, on the markets operations and resultantly, pricing has become stable and predictable, whilst the supply of goods has improved markedly, preparing the desired groundwork for more investment and growth.

There are however some very important aspects that have remained a drag in the growth process from the financial markets perspective, and these aspects remain within the realm of fiscal policy influence. Capitalisation of the RBZ is very critical in the wider scheme of stabilizing the economy and the mid-term fiscal review needs to address that, or at least spell the road-map. The capital pricing mechanism in the financial markets has been very inefficient for the past 15 months or so, and the absence of lender of last resort functionality at the RBZ, among other things, has played a significant role in perpetuating that problem. As long as the central bank is not providing liquidity windows to banks in short positions, it would take excessive risk-taking behavior by banks to lend generously, one of the reason why the loan to deposit ratios have remained low as banks conserve more cash on their own balance sheets as a contingent measure. Not only has this constricted the flow of credit, but it has equally resulted in the high cost of capital obtaining in the market where interest rates range anything between 15% p.a to over 100% p.a.

Therefore besides the issues of the quantum of deposits in the economy and international perception, there is so much that the policy makers can do to influence the cost of credit via moral suasion and putting appropriate infrastructure to manage systemic risks within the banking sector. The interbank market, which becomes the next liquid source of cash for banks in short positions, becomes a chess-board for those with excess cash, a very good trigger for systemic risks should one big bank suffocate under the high costs of overnight funding.

Capitalizing the RBZ therefore should become a policy priority not only to manage cost of credit, but to equally reduce the incidence of systemic risk within the broader banking sector.

Capitalizing the RBZ on its own without other supporting market instruments will not bring the much desired efficiency. Notwithstanding the huge debt overhang, the government has to come into the market and set the risk-free rate via issuance of debt (treasury bills). Having markets where the risk -free rate is left to speculation affects the pricing and indeed availability of capital from both the domestic and international financial markets. Its more than 15 months since dollarisation and in all fairness, the market has to have a risk-free pricing anchor to manage expectations, more so now that inflation has started rising and without guidance, the markets become wild and inefficient in allocating resources. All countries have debt challenges, some worse than Zimbabwe, but what would be important from the policy perspective is to have an efficient pricing of capital for credit to flow more freely.

Closely related to this comes the unavailability of long term-capital resulting out of absence of very poor signaling. Most corporate balance sheets are weak due to capital erosion over the years that emanated from high inflation and lack of foreign currency. Revitalizing the physical capital structures of these balance sheets require reasonably priced long-term. Unfortunately, banks are not willing to price long. Attempting to price long term-capital in a market whose risk-profile is open ended is taking the speculative game too far and considering the difficult capital positions banks are sitting on, it’s a risk not worth taking. The biggest blunder that any bank can do is to price long term now, only for the government to come later on and price its long-term bonds at levels higher than what the bank would have plunged at. Logically anyway, the short-term interest rates obtaining now are attractive for the banks and therefore pricing long into the unknown, usually at discounted rates, would need the guiding hand of Paul, the Psychic Octopus that has been correctly predicting the world cup outcomes.

Therefore the government, via the fiscal policy, has a very important role in shaping and managing pricing expectations. The argument that the existing debt overhang is unsustainable and therefore the government cannot procure new debt is therefore misplaced when one considers the need to have efficient allocation of resources in the market. Inefficient pricing in the financial markets affects the whole economic system, and therefore paying little attention towards managing the pricing expectations is missing some of the key elements in maintaining a steady growth path.

DEBT CRISIS LOOMING

The dollarisation of the Zimbabwean economy eroded many other economy-wide risks that haunted corporates for almost a decade, from price controls to the inaccessibility foreign currency. With the much celebrated stability, a new crop of risk has emerged, and that relates to the debt crisis at both the national and private household level.

A decade of high inflation made borrowing a lucrative pass-time Zimbabwe. ZW$ asset prices kept rising whilst the real cost of debt diminished rapidly as the central government kept printing more money to cover the fiscal deficits. The subsequent inflation impoverished not only the government, but the households and corporates and the increasing despair was met by economy-wide subsidies which ignited more inflation. Indeed borrowers were the biggest beneficiaries of inflation. By 2008, s/he who borrowed the equivalent of $1 on 01 January 2008 had to pay back $0.01 by 31 December 2008 to the bank in settling the whole debt! The borrowers, including the central government, were the biggest winners whilst the consumers and the economy at large edged towards bankruptcy.

In May of 2007, the government borrowings were about 18% of bank balance sheets, and by December 2008, that had evaporated to almost nothing! Only fiscal moralists wouldn’t marvel at these great works of inflation in reversing the debt burden on the central government. And indeed the death of the ZW$ sealed the fate of banks, pension funds and insurance companies that held the bulk of government debt and today our government is better off with only $8 billion debt overhang. The moral opinion that the government created inflation and was among the major beneficiaries is therefore very hard to dismiss. With winners equally come the losers and as the borrowers, including the government, benefited from inflation, the banks and ordinary consumer lost their capital positions in real sense. Real wage rates plummeted, and indeed, the banks were left clutching to capital in the form of largely investment properties and equipment.

The tables have turned. A new crisis is lurking in the shadows of the optimism. And that relates to burdening real and expensive debt that may, if corporates are not careful, infect balance sheets and define a new chapter of corporate bankruptcy. In a bid to revitalize weak balance sheet and inject working capital, corporates in Zimbabwe have plunged into fresh debt arrangements. Physical capital formation had almost ceased for over 7 years in Zimbabwe, and considering the pace of global technological developments that swept across the past decade, most production processes are now outdated and, more importantly, inefficient. The domestic unit costs of production are therefore not competitive when compared to the rapid advancements and competition from low cost producers such as China and equally competitive producers like SA.

Inasmuch as the Zimbabwean corporates could have enjoyed the borrowing binge of the past 4 years, the exchange control regulations and the associated scarcity of foreign currency meant that the cheap credit could only do but very little for the borrowers in terms of enhancing capital goods, hence key components of balance sheets remained weak. Today’s new race for debt, thanks to the reluctance by banks to lend, has been influenced by the notion, misplaced at times, that the existing operational structures are still profitable and corporates can easily turn to producing profitably if they get working capital. Unfortunately most corporates are finding the going tough, and the recent results coming out of some of the listed companies are revealing how septic corporates balance sheets are getting by the day. With credit so pricey due to the current liquidity crunch, interest cost is proving to be a huge operational burden for many companies, and, unfortunately, the debt heaping on the balance sheets is increasing at a rate that will soon compromise the solvency of many companies.

On the other hand, the rising wage levels are adding to the woes on the cost functions, implying therefore that worker productivity will be taking a more important role in corporate planning going forward. In the past only $100 could pay all wages, water and electricity for a medium-sized company as the magical ‘burning’ of foreign currency immensely benefited owners of capital. Now the times have changed and all these costs are real on companies’ operation structures, and hyper-inflation, then ‘father miracles’, is no more to do the ‘Christmas tricks’. Just as the miraculous hyper-inflation Christmas tree dried, so has the subsidy mentality where BACOSSI and ASPEF created artificially low operating cost structures at the nationwide expense of even more inflation. Interrogating the debt markets to revitalize operations has become one last option for companies stuck with rising real operational costs and the need to restart operations that had been stopped for years. And it is indeed the way out, but equally with landmines.

Loans to the private sector stand at 30% of GDP in Zimbabwe today, and considering the shallow depth of the financial market and indeed the liquidity crunch, Zimbabwe’s private sector is highly geared compared to Zambia with only $1.6 billion in loans, about 8% of GDP and Tanzania with loans at 15% of GDP. However, upon factoring in the relative potential of Zimbabwe’s GDP considering very low capacity utilization below 45% in industry as well comparing with the debt-addicted South Africa where private sector debt is 90% of GDP, the temptation to encourage gearing remains very high in Zimbabwe. This temptation may prove to be rewarding for those that will be able to restructure operations and processes to embrace the dynamism and indeed thin-margin environment that is shaping out for sectors such as banking, manufacturing, retail, hospitality, insurance and of course those other sectors competing directly with low-cost global producers. And contracting debt in such sectors, more so expensive debt obtaining in Zimbabwe, the survival chances narrow with each extra day it stays on the balance sheet. For the central government, the fate has been decided already.

The government debt overhang, better at about $8 billion than otherwise had inflation not done its major miracles on the domestic debt, is stagnating economic growth already, and indeed, some corporates are falling into the same trap as the central government. The recent pounce on RBZ assets by numerous creditors bear testimony to real debt challenges facing the government where its assets are being stripped, and without a doubt, in the same fashion, more foreclosures will be tapping on corporate doorsteps. Shunning debt completely is not a viable option for Zimbabwean corporates considering the poor capital structures after a decade of inflation and the need to carry on but, equally, contracting debt blindly is not the answer in restructuring of balance sheets.

A fine balance would have to be struck, and in the process, some will likely lose the balance completely and plunge into bankruptcy. The intoxication, and resultant addiction that comes with debt is so hard to fight, and the recent global financial crisis tells the complete story. And for the banks that are going to lose money in foreclosures, learning from South African banks, ABSA and Standard Bank, that had impairment charges of $1.2 billion and $1.6 billion respectively in 2009 could provide the valuable lessons. The lessons will, unfortunately, result in more stringent lending and in the process constrict the credit flowing into the economy as is the case currently, compounding further the bankruptcy fears. These are the difficult times, tossing a coin with both heads and tails winning.