ZIMBABWEAN local banks could be headed for a crisis as they battle fixed and other costs against constrained revenues with most of them forking out in excess of US$12 million per year in systems licence fees alone.
Virtually all banks run on foreign systems, which cost in excess of US$1 million per year in licence fees.
This year, local banks hiked transactional charges by as much as 900% as pressure mounts on the financial intermediaries to pay United States-denominated payments to services rendered by their offshore suppliers.
This comes as the sector is reeling from a number of challenges, among them cash and foreign currency shortages, an unstable exchange rate, low capacity utilisation and runaway inflation that has galloped past 700%.
Much of the foreign currency generated in daily trades are not being banked because generally most people do not trust the banking system any more. This limits the revenues for banks.
Bankers who spoke to businessdigest this week say the sector was hard hit in terms of costs against RTGS and US dollars amid limited foreign currency earnings.
This is against constrained US dollar revenues as banks earn most of their revenues in RTGS dollars and yet most costs are now pegged to the US dollar. The licence fees can only be paid in forex while other costs can be paid in RTGS dollars.
Effects of regulations on bank charges with regards to industry profitability, digitalisation and branch closures, have also wreaked havoc in the banking sector.
Banks are also battling to grow the loan book as most of the credible borrowers do not prefer the local currency. As a result, the market loan-to-deposit ratio is now 30%, implying less interest income.
Bankers Association of Zimbabwe president and Standard Chartered Bank Zimbabwe chief executive Raphael Watungwa on Wednesday said there was a huge mismatch between revenues and costs adding that fixed costs were unavoidable.
Watungwa said the results of fixed costs against dwindling revenues have been that the costs have been eating into banks’ profitability. He said eventually the consumer would bear the costs.
Watungwa said the high costs of foreign systems were unavoidable and irreplaceable as they were complicated global systems which allow interfaces with the worldwide banking platforms.
“You just don’t wake up and have your own system. These systems allow interface with the global banking community and allow communication. There is nothing banks can do about it,” he said. “But you will realise that it is the local banks that are affected the most as, for example, we (Stanchart) rely on our parent company system. We can then be able to bypass that cost when some banks cannot. What it means is that in the current environment, where revenues are limited, banks will have to come up with ways to cover the fixed costs. Fixed costs are difficult to avoid. Even if we were to replace them, you will agree with me that we have no capacity. So in the face of this huge mismatch, local banks need support.”
Watungwa said the banks would have to rely on their ability to reduce avoidable costs as failure would lead to redundancy.