'Banks face tough times'

HARARE - Zimbabwean financial institutions should brace for a tough economic climate this year due to tighter regulation and indigenisation threats, a report by stock broking firm Lynton-Edwards says.

Last year, Finance minister Tendai Biti and Reserve bank of Zimbabwe (RBZ) governor Gideon Gono promulgated a raft of measures among them, orders instructing banks to scrap charges on deposits $800 and below.

The institutions were also ordered to pay at least four percent interest per annum on deposits of $1 000 and above held over a minimum period of 30 days.

Under the new regulations, banks are also required to charge lending rates of not more than 12,5 percentage points above a “participating financial institution’s cost of funds”, inclusive of all deposits.

But according to Lynton-Edwards’ “2013 outlook: Changing gears or growing fears” report, the country’s depositor confidence is yet to be restored while economic uncertainty lingers on.

“As a result, banks are likely to underperform both operationally and on the Zimbabwe Stock Exchange. Over the next 12 months (and possibly longer), banks will be faced with competing priorities and scarce resources as they try to implement major regulatory changes as well as trying to fundamentally reshape the business and redefine the operating model,” read part of the report.

The country’s banking sector is characterised by financial exclusion with the majority of Zimbabweans not participating in formal financial services or channels and have no bank accounts.

It is also characterised by high bank charges and lending rates, and surging non-performing loans.

Deposits are also said to be below potential and transitory in nature.

The Bankers Association of Zimbabwe (BAZ) recently said indigenous banks operating at the lower end of the market with a wide branch network and in the remote areas of the country will face serious viability challenges and may be forced to close some of their rural operations due to the new tight regulations.

Kudzanai Sharara, an analyst with Lynton-Edwards said regulatory reform has the potential to deepen the divide between stronger and weaker banks and the cumulative impact of reforms will force the industry, and its investors, to adapt to different return on equity expectations.

“The challenge has become that much harder as the country heads towards watershed elections. Even before the new regulatory changes, profitability for most banks had been hit as interest margins fell and non-performing loans increased,” he said adding that reducing charges and lending rates will not be a solution in many cases and the affordability of the reforms is going to be a real challenge.

The survey also noted that banks are also facing increased competition from non-traditional sources especially in consumer markets, as micro-finance institutions, telecommunications companies, retailers and others look to build a presence in the banking sector.

“As well as responding to demand for more “vanilla” products, these organisations are also tapping into an appetite for banking services to be delivered in new and innovative ways. This new breed of competitor is nascent but could be a major threat for banks,” said Lynton-Edwards.

There were calls by some sections of the banking sector to have mobile financial service platforms regulated by the RBZ.

The central Bank has however said these platforms are mere payment systems or delivery channels which do not amount to deposit taking.

The apex bank urged banks to leverage on this “impelling development”. - John Kachembere

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