Banks should stop whingeing, be creative

THOSE who have been following the latest end-June results will have noticed that most banks made a profit.

Candid Comment with Itai Masuku

However, they will also notice a line running through most of the banks’ comments on the period under review that they have been hampered from making more profit by the Memorandum of Understanding they signed with the Reserve Bank last year, which came into effect this year.

As a reminder, the MoU essentially curtailed the interest rates that the financiers were charging to business and individuals as well as the fees and commissions. There were many other provisions in the MoU but this was a central point.

The banks are on record as saying they will lose more than US$70 million in profit by year-end because of the cut in rates, fees and commissions.

What one finds disturbing is that the banks seem to be operating in a vacuum. It seems they believe that they and they alone must make hefty profits while all and sundry have to contend with losses partly created by hefty interest rates.

Many will recall that some businesses went under while others nearly did so, choked by interest rates as high as 30%. Of course the bankers will argue that this was a question of demand and supply, since when liquidity is low interest rates are high.

Just after dollarisation, there was said to be some US$300 million in bank circulation.

However, liquidity has since improved to more than US$4 billion in official bank circulation, thus the same law of demand and supply should dictate that the rates should have eased off before intervention by the central bank.

But no, it had to take the sort of moral suasion by the government for the financiers to lower interest rates. Globally, taking a cue from the Federal Reserve in the US, many central banks have been pursuing quantitative easing in order to stimulate economic activity.

The benchmark rates by the world’s major central banks have naturally translated into lower rates by banks. So the argument by some local banks that they are securing offshore lines at expensive rates is dishonest.

Furthermore, many banks have benefited from funds at concessionary rates from institutions such as the Afreximbank, African Development Bank, PTA Bank etc. In spite of this, our banks have gone on to levy as much as 12% above the cost of funds, yet they still complain of viability.

Clearly, gone are the days of making huge profit margins as in the now defunct Zimbabwe dollar days.

Banks must realise that while we do not expect them to subsidise interest rates for industry, they must charge rates that allow industry to be viable. The bane of Zimbabwe’s economic problem is the demise of its industry. It is industry that needs to be revitalised.

Once our industry is on its feet, the banks can do the proverbial smiling all the way to the bank. What the banks need to do is to make representation to the central bank for a reprieve on meeting the US$100 million minimum capital thresholds by June next year.

In this they can cite the slower pace of accumulating reserves to meet the threshold.