RBZ reforms: Banks to lose $73m revenue

via RBZ reforms: Banks to lose $73m revenue – DailyNews Live  10 NOVEMBER 2013 

Zimbabwean banks are set to lose over $70 million in income in the nine months to December 2013 following a raft of reforms imposed by the Central Bank, according to the Bankers Association of Zimbabwe (Baz).

In January this year, the Reserve Bank of Zimbabwe (RBZ) signed a memorandum of understanding (MoU) with banks — through Baz — under which the institutions agreed to reduce lending rates, scrap bank charges and pay interest on deposits among other reforms.

BAZ said it hoped the RBZ will review and revisit some aspects of the MoU, particularly those that had adversely impacted on the banking sector’s viability.

“The MoU has had the immediate impact of reducing income for banks — an estimated $73 million reduction in income is envisaged from March to December 2013. At the same time banks are required to achieve new capitalisation thresholds while also capitalising the Deposit Protection Board,” said the association.

The MoU — which came into effect on February 1 — required, among other things, that lending rates be capped at 12. 5 percent, above each respective bank’s weighted average cost of funds.

The institutions were also ordered 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 will cost up to $4 per account.

The Central Bank and bankers also agreed to push for the mandatory use of debit cards.

Automated teller machines, according to the MoU, will now attract a withdrawal fee of $2.

Point-of-sale machines attract a fee of between 10c and 50c, while no charges would be levied on cash deposits.

However, Baz argues its members, whose income ratio is 40 percent, will incur huge financial losses.

Market experts also assert that the new measures are a form of price control and history shows that market forces cannot be controlled without dire consequences.

Albert Norumedzo, an equities and alternative investments analyst at FBC Bank said while the banking sector has remained sound taking a cue from improving macroeconomic fundaments, over the retrospective period an essential shift has happened with most banks offering little surprises in their financials.

“Current half year profitability profiles are indicative of the hurdles that have exhibited the general economic and political landscape.

Zimbabwean banking sector is in part affected by the uncertainty around the political scenery as most depositors are risk averse to similar and related losses of political dispensation in historical events, while also the effects of the MoU cannot be taken for granted,” he said.

Norumedzo said the effects of the MoU have echoed the need for alternative revenue sources within the sector with strong emphasis on sustainable investment in information technology systems and product innovation and development.

MMC Capital in its Banking sector survey released recently noted that total after tax profit for local banks reporting half-year results for the year ending June declined to $52 million from $63 million due to the MoU.

“The deterioration in earnings was partly due to the MoU) which took effect on the 1st of February 2013,” read part of the report.

“The signing of the MoU with the Central Bank resulted in banks taking a knock in non-funded income. Historically, non-funded income has 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 expense has been growing ahead of interest income, tightening the margins,” said MMC Capital.

As the dust caused by the MoU is yet to settle, the introduction of the EcoCash Save, in our view, is likely to be another game changer going forward,” the report added. Financial reports for 13 Commercial banks, three Building Societies and one Savings bank were analysed in the report.