17 September 2010

Zimbabwe: Return of Banks Will Lead to Dog Fight - Tetrad

The re-emergence of more Zimbabwean banks will result in a serious dogfight over deposits as banking institutions struggle to sustain operations, a Tetrad Group report says.

A weekly market report by the group says the re-opening of previously shut banking institutions -Barbican, Trust and Royal Bank - could result in more banking institutions employing aggressive tactics in frantic efforts to have a portion of Zimbabwe's bank deposits currently standing at over US$1, 8 billion.

The return of the three banks closed six years ago by the central bank would increase commercial banks to 17, a figure some critics say is too high for Zimbabwe's small economy.

"The struggle to secure deposits is still inherent. Subdued economic activity has not made it easy for banking institutions to revive themselves," the group said.

"Ironically, Barbican, Trust and Royal Bank were re-issued their banking licences. This brings the total number of commercial banks to seventeen. Competition is going to be stiffer and a lot of banks are going to find their slice of the cake much smaller than before as the dogfight worsens."

Also expected to open its doors to the public is Time Bank which was granted its licence last November. The new banks are unlikely to be a reprieve for jobless bank employees who faced retrenchment early this year. Some banks have already announced more job cuts.

Half-year interim financial results have shown that although most banks made varying profits during the period, at least 1000 bank workers were retrenched during the first half of the year.

The financials also showed that most banks reported a profit although some such as NMB, Barclays and MBCA were at loss positions. Deposits grew from US$1,4 billion in January to US$1,8 billion at the end of June although banks remained prudent in their lending.

Tetrad Group says ongoing restructuring exercises characterised by job cuts and streamlining operations resulted in staff costs eating into company profits.

"The losses were mainly due to high operational costs, which varied from retrenchment costs to high staff expenses in general," reads the group's weekly report.

With interest rates expected to go down in the next months as banking institutions go for lending with longer tenure, it remains to be seen how many institutions will wade through, given the liquidity problems prevailing on the market.

More so, with most banks having generated non interest income from commissions and fees, less aggressive banks could continue to feel the pinch. Most banks are charging between US$3 and US$5 in monthly service charges.

BancABC and CBZ were some of the biggest earners of interest income with net amounts of approximately US$21,2 million and US$9,408 million respectively.

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