Zim banks face huge losses
HARARE – The Bankers Association of Zimbabwe say government’s proposed fiscal reforms, which will see huge reductions in banking service charges and interest, will wear down industry profitability and compromise recapitalisation.
Finance minister Tendai Biti said banks should, starting January 2013, not levy fees on deposits of less than $800 and give four percent interest per annum on deposits of at least $1 000 held over 30 days, but the Bankers Association of Zimbabwe (Baz) argues its members, whose income ratio is 40 percent, will incur huge financial loses.
The association said 70 percent of individual banking customers earn less than $800 per month which would imply free banking for majority of Zimbabweans and that banks currently generate 60 percent of their income from loans and advances and 40 percent from non-interest income.
“As at 30 September 2012 banks’ overall profits were in the region of $90 million and therefore a reduction of $72 million revenue annually will create severe viability and sustainability challenges for the banking sector,” said Baz in a position paper seen by Fin24.
“Banks are currently saddled with non-performing loans due to the short-term credit and high cost of funding at a time when the productive sectors require cheap, long term credit.
“Baz cannot therefore rely solely on the interest margin on loans because of the high level of non-performing loans of at least 12,3 percent against the Basel II level of five percent,” read part of the document.
Baz 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 as they are subsidised in part by these charges.
Some banks may fail to pay their employees.
“Banks such as POSB,Baz, Agribank, CBZ, BancABC will be the most affected….banks will also be less inclined to open accounts for low income earners and the net effect of these measures will be serious setbacks to the financial inclusion,” added Baz.
Meanwhile one local daily reports that Finance minister Tendai Biti has set new rules on bank ownership, triggered by instances of malpractice in the financial sector in the past few years.
In the new rules to be included in the amendments to the banking laws, individuals and companies would be allowed to hold shareholding of up to five percent and 25 percent respectively, down from 25 percent and 40 percent.
The rules also extend to applications for bank loans by individuals in which they are shareholders or directors.
Biti said cabinet had also agreed that individuals holding shares, as well as directors of the banks, would not be allowed to apply for loans from the same institutions they own or work for.
Biti said the changes would also see the establishment of the Office of the Ombudsman who would be responsible for monitoring interest rates. — Fin24