1 January 2013

Zimbabwe: Tight Rope for Banks

THE proposed scrapping of bank charges on deposits of up to US$800 by Finance Minister Tendai Biti may affect the viability of several banks, the African Development Bank has said. Presenting the 2013 National Budget in November last year, Minister Biti proposed that banks should exempt deposits below US$800 from any bank charges.

"This measure is intended to enhance savings mobilisation from low-income earners and improve depositor confidence," said the AfDB in its November monthly economic review for Zimbabwe.

"However, given the low average incomes in the economy, a majority of people earn not more than US$800. This policy measure may adversely affect banks with a high concentration of clients who fall below this band."

The Bankers' Association of Zimbabwe has written to Minister Biti, pointing out that the proposed measure would compromise the profitability of several banking institutions.

BAZ says 70 percent of its individual customers earn less than US$800.

"As at September 30 2012, banks overall profits were in the region of US$90 million and, herefore, a reduction of US$72 million will create severe viability and sustainability challenges for the banking sector," BAZ was quoted as saying by a daily paper. "Banks such as POSB, Agribank, CBZ Bank and ABC (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 a serious setback in the financial inclusion, the statement said.

BAZ said banks were currently saddled with non-performing loans due to the short-term nature of credit and the high cost of funding at a time when the productive sectors require cheap, long-term credit.

"BAZ can, therefore, not rely solely on the interests margin on loans because of the high level of non-performing loans of at least 12,3 percent against the Base II level of 5 percent."

Analysts said the proposed measures may also force many banks to close some branches, particularly areas with a high concentration of customers earning less than US$800.

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