The Sunday Mail
Business Editor
LOCAL banks, which have been operating in an economic environment that is largely poisoned by cash shortages, low disposable incomes and low production in industry, managed to add $50 million to the profits they realised in 2014, heightening suspicions that they could be milking depositors.
On the overall, the aggregate net profit, or profit after tax (PAT), rose to $128 million last year from $79 million in 2014.
Notably, all banks recorded a profit even though they scaled back on loans.
A year earlier, FBC Bank, BancABC, ZB Building Society, ZB Bank and MetBank had recorded losses.
CABS was the top performer as its profit grew 18 percent to $28 million from $24 million a year earlier.
The bank accounted for a 22 percent share of the profits. CBZ’s net profit rose 61 percent to $26,2 million from $16,3 million in 2014. Stanbic added $3 million to its profit in the year to December 31, 2015 after its PAT topped $24 million.
POSB registered the fifth best performance after net profit spiked 532 percent to $8 million in the review period. Commercial banks managed to grow their share of the profits from 61 percent in 2014 to 66 percent in 2015.
Interestingly, a recent report titled “An excluded society? Financial inclusion in SADC through FinScope lenses” published by FinMark Trust, an independent trust based in Johannesburg, South Africa, indicated that close to 5 million people, or 70 percent of the country’s adult population, do not use services offered by local commercial banks.
Stockbrockers MMC Capital Investment Research indicated in a Weekly Market Summary published last week that the local banking sector is weathering the storm.
“Local banks have become more flexible in the local environment and this has allowed them to tweak their business models to be more in line with client demands. To improve the bottom-line, banks have increasingly structured tailor made products in order to withstand the double-edged sword of greater economic informalisation and disruptive mobile money technology.
“Looking ahead, the sector will continue to focus on growth prospects across broader market segments, cost management controls as well as stricter credit controls to minimise non-performing loans.
“The persistent liquidity challenges and sluggish real economic activity will continue to put pressure on the extension of credit, with quality credit asset creation being heavily dependent on astute risk management. We hence maintain our positive outlook on the banking sector as opportunities for growth are set to be further bolstered by the financial inclusion initiatives taken by the central bank.
“These will provide the impetus for the development of simpler and competitive banking products thus allowing banks to penetrate to the lower income and the unbanked sectors of the society,” said MMC Capital.
Analysts say the anomaly where banks continue to be profitable in a largely shrinking market that is now dominated by mobile money services could be an indication that they are milking the few customers that they currently have on their books.
A recent survey estimates that 3,3 million of Zimbabwe adult population of 6,9 million is using mobile money services. Economist and chief executive officer of Mtlikwe Financial Services, Mr Kingston Khanyile said banks are mainly leveraging on fee income or service charges rather than interest income to remain profitable.
He said this is the reason why some banks are recording fee incomes that range between $20 million and $35 million at a time when they have cut back on lending.
“If you look at the results, it is clear that banks have stopped or reduced lending, but their fee income continues to grow, especially in a deflationary environment such as ours. It could be that banks are making cheap profits from a few depositors that they currently have.
“It should also be considered that some of the banks are benefitting from the highly-priced loans that they made during the hyperinflationary era. When borrowers failed to pay, some of the loans were rescheduled at punitive interest rates. In this way, banks will continue to make new money without any fresh capital.
“Most of the fee income is seemingly high because of the punitive charges such as administration fees and withdrawal charges that are levied by banks on depositors.
“Considering that there are currently a few depositors in the market, this is the only opportunity that they can get money,” said Mr Khanyile.
He added that banks are now largely micro-financing as their loans are now targeted at individuals at the expense of the productive sectors of the economy.
Last year, banks increased lending to individuals from 51 percent ($51,9 million) to 68,4 percent ($68 million), while lending to the communications industry dropped from 11 percent of the loan book to 6 percent. Crucially, lending to the construction sector, which has a stimulus effect on the economy, is now pegged at 3 percent of the total loans.
There are however expectations that the financial services sector will skew its allocations towards productive sectors.
