Banks face tough test


HARARE – Econet Wireless’s EcoCashSave service is likely to be a game-changer for Zimbabwe’s banking sector, in a country where more than half of its population remains unbanked.

The innovative product, which allows customers to use their mobile number as a bank account  and earn a four percent interest on amounts from as little as a dollar held for more than 30 days, comes as global mobile payment transaction values are projected to reach $235,4 billion in 2013 by information technology research and advisory company, Gartner Inc.

The service by the listed telecoms provider resonates with the successful launch of its mobile money platform, EcoCash, which boasts of three million-plus users and transacting more than $1 billion in nine months to September, according to the Reserve Bank of Zimbabwe (RBZ).

Local banks on the other hand have struggled to attract deposits from the public due to hindering service fees, with over $7 billion generated by small to medium enterprises circulating outside the formal system, according to the FinScope report.

According to World Bank estimates, 2,5 billion adults in developing economies do not have access to a formal bank account, while 48 percent of the world’s adult population is not able to access basic financial services in order to save, borrow or transact, due to prohibitively high cost of a traditional physical bank branch.

Currently, banks are operating under a memorandum of understanding (MoU) signed with the RBZ in an effort to boost customer deposits and address consumer concerns.

The MoU, which provides guidelines for the determination of interest rate margins and bank charges, has however, not seen major changes taking place in the sector.

The document provides for an interest of four percent to be paid for time deposits of $1 000 and above held over a period of at least 30 days, while lending rates are subjected to a maximum rate of more than 12,5 percent  above each respective bank’s weighted average cost of funds.

Banks were required to charge up to 0,5 percent of cash withdrawal amount subject to minimum charge of $2,50 while ledger fees, maintenance and service fees were to cost up to $4 per account, while debit cards were to be made mandatory.

Bank customers are to be charged a withdrawal fee of $2 for using automated teller machines with point-of-sale machines attracting a fee of between 10c and 50c, with no charge being levied on cash deposits.

Despite its implementation, banks have continued to spurn the MoU charging rates above those agreed and calling for its revision.

“You will recall that the MoU was supposed to run for a period of six months after which the parties to the agreement would automatically look at how certain provisions of the MoU can be revamped.

“This process will naturally take a bit of time and it may be too early at this stage as the bank wide study we have referred to above is still being carried out,” Bankers Association of Zimbabwe (Baz), advocacy officer Clive Mphambela said.

“Whilst it suffices to say most banks have in their interim results, highlighted that the MoU has had a negative effect on their performance, it is not possible at this stage to isolate the effect of the MoU on bank performance given there are various other economic challenges facing the economy that have also impacted on banks,” Mphambela said.

He said banks were still to finalise a position paper to be handed to RBZ on changes to be made to the existing agreement.

“The sector is conducting a full analysis to quantify the impact of the MoU and the results of the study will give guidance to the authorities on how the arrangement will be refined in line with the agreed provisions of the MoU,” the Baz spokesperson said.

According to Kingdom Bank in its results for the 18 months, collective income loss for all banks in total as a result of the MoU is expected to be $73 million this year alone.

“The signing of the MoU with central bank resulted in banks taking a knock in non-funded income (NFI).

Historically, NFI have been the major contributor to most banks’ revenue and the MoU was a major blow to the top line.

“Yields on assets were capped whilst the cost of funds was growing. For most banks, interest expenses have been growing ahead of interest income, tightening the margins,” research firm, MMC Capital said.

“In our view, the notion that the fees are still very high despite the MoU is not true given that all the banks have experienced a knock on operating income,” it noted.

It said the uncertainty in the national economy, which is projected to shrink to 3,4 percent this year, would further worsen an already declining national savings rate, negatively impacting on the sector growth.
“Liability gathering is likely to prove to be a challenge as low incomes growth and weak investor confidence will militate against deposit mobilisation.

“The move by the banks to call for an agreement on the best way to handle the capitalisation issue will likely see no bank closures in the medium term.

“Banks will likely concentrate more on seeking international partners as they intensify their efforts to source for credit lines which are generally cheaper and of a longer tenure relative to local funds,” MMC Capital said Independent economist Vince Musewe however, called for further reforms in the financial services sector.

“It continues to surprise me that even our banking sector cannot agree how to revive this economy. They all know what needs to be done to attract deposits and give good returns. Everyone in this sector should focus on that and act accordingly.

“The banking sector has a huge role to play in the efficient use and allocation of resources. They must cut costs,” he said.

“There is this belief that the $75 million would have been used productively which is not necessarily the case. We have too many fat cats drawing big salaries and perks in this sector, and we have not heard them say we will cut our own costs so that we can invest more in the economy. We need to sacrifice for the future, everyone needs to do that including government but everyone is complaining for change as long as they are not affected. Its ridiculous!”

He said better service, low cost banking and better returns for depositors will be an investment attraction enabler.

“This is a very simple formula that every banker knows. Costs can be reduced through innovation and using technology and I hope we see more of that in the future.”

Comments are closed.