Banks grapple to recover from economic crunch

THE financial sector in Zimbabwe is yet to recover from a decade-long economic crisis as shown by commercial banks’ results for the year ending December 31 2009.

According to the results, a lot of banks are grappling to recover and have implemented restructuring exercises, which include branch closures, merging of operations, steamlining of other operations, retrenchments and aggressive cost cutting measures in order to remain afloat.
This has resulted in high cost to income ratios for the sector.
CBZ Bank however retained its top position commanding 33% of the market share in terms of deposits, 24% in advances and 16,3% total assets as at December 31 2009.
The top four commercial banks controlled 74% of the deposits during the same period with Standard Charted 19% followed by Stanbic Bank 15% and Barclays at 10%.
Bank deposits increased by 35% during the last quarter of 2009 from US$1 billion to US$1,35 billion.
The average monthly deposit growth was US$113 million, a 9% increase or 26% of GDP.
Zimbabwe Allied Banking Group (ZABG) and CFX Bank did not release their financial results.
ZABG said they were yet to finalise their shareholders dispute with the owners of Trust Bank, Royal Bank and Barbican Bank.
CFX Bank said it was waiting to conclude its proposed merger with Interfin.
Most of the commercial banks’ cost to income ratios were above 90%, which analysts said showed the banks were still recovering.
High income ratios show that the banks were inefficient, loss making and needed to re-align their income and cost revenue otherwise shareholders would need to keep subsidising inefficient management via fresh capital injections.
CBZ Bank’s cost to income ratio was 56%, Stanbic 62%, Metropolitan 63% and NMB 89%.
The cost to income ratio is an efficiency measure similar to operating margin. Unlike the operating margin, the lower it is, the more efficient it is.
It is useful to measure how costs are changing compared to income — for example, if a bank’s interest income is rising but costs are rising at a higher rate looking at changes in this ratio will highlight the fact.
ZB Bank had the most unattractive cost to income ratio of 153%, followed by TN Bank with 146%. Standard Chartered and Kingdom’s ratios’ were 123% and 110% respectively.
The banks said they faced similar problems, chief among them, Zimbabwe dollar deposits being completely wiped out, meaning that bank deposits had to be mobilised from zero.
They have also cited high operating costs such as rentals, rates and high staff costs which affected their operations. The absence of the lender of last resort and financial disintermediation emanating from the rise in the informal sector which was fuelled by hyperinflation also affected banks operations.
It is estimated that about 5% to 10% of the money in Zimbabwe is circulating outside the banking system as the majority operate on a cash basis due to loss of confidence in the banking sector.
CBZ led the commercial banks’ achieving a profit after tax of US$7,9 million. Stanbic Bank was second with US$6,7 million. NMB and Metropolitan were third and fourth with US$2,2 million and US$1,6 million.
CBZ also led the banks in term of total income accumulated during the same period with US$33,9 million. Stanbic was second with US$26,3 million. Standard Chartered Bank and Barclays completed the top four with US22,4 million and US$17,5 million.
Announcing the group’s financial results, CBZ CEO Nyasha Makuvise said: “2010 would be a year of consolidation for the group as it looks to rationalise operations between its bank and building society operations.”
Group MD John Mangudya said deposits had risen to $450 million last week on Tuesday from $360,8 million at the end of December 2009.
Finance director Never Nyemudzo said total income in the period amounted to US$41,74 million, with non-interest income making up 76% of the total.
The bulk of 61% had come from commission and fee income, loan establishment charges and ledger fees loan.
CBZ Bank had assets valued at US$405 million while Standard Chartered’s assets amounted to US$269 million.
The value of Stanbic Bank’s assets was US$201, while Barclays completed the top four with US$169 million.
Kingdom Bank, emerging from a rocky marriage, had a loan to deposit ratio of 119%.
The group’s holding company announced that it was courting local and international equity partners as it seeks to consolidate its position in the financial sector.


Paul Nyakazeya
MBCA and CBZ Bank’s loan to deposit ratio was at 67%, while that of Metropolitan Bank was 61%.