‘Zimbabwe not overbanked’

Zimbabwe is not overbanked, a study by a leading securities firm has said.

Chris Muronzi

A detailed study by FBC Securities says Zimbabwe, with a population of 13,8 million, GDP of US$10,81 billion and only 14% of the population with bank accounts, is not overbanked.

“In a country with a population of 13,8 million at a GDP of US$10,81 billion, housing 22 banks and over 100 microfinance institutions, one could easily jump to the conclusion that Zimbabwe is overbanked. However, our estimates have revealed that only 14% of the total population has access to the formal banking services.

This is possibly attributed to penetration of banks in capturing the unbanked rural population and thriving informal sector,” the report said.

“In Zimbabwe, most banks are located in major towns and cities due to the traditional view that towns and cities offer better business compared to the rural areas, thereby leaving the rural community unserviced.

Against this background, there is scope for underwriting more business in rural areas if banks think strategically to mobilise agriculture-based deposits. Zimbabwe’s rural population still yearns for financial inclusion as in the case of Bangladesh (Grameen Bank) and Kenya (Equity Bank) which transformed the landscapes of financial services development in those respective countries.

Meanwhile, the bulk of the urban population is involved in the informal sector (estimated at around 25% of GDP) and remains largely unbanked to date.”

On a comparative basis, in sub Saharan Africa, Zimbabwe is positioned the least in terms of deposit accounts per 1 000 individuals at 139.

This leaves 861 people out of 1 000 excluded from the banking system.
Relative to the selected countries —Zambia, Tanzania, Malawi, Mozambique, Ghana and Kenya — per capita GDP to the number of banks at 34,38% indicates that on average a bank captures a potential maximum income of US$34,38 per individual.

“Compared to Namibia where one bank has the potential to capture the maximum of U$$1 114, it would seem there is more room for more banks in Namibia than in Zimbabwe,” the report said.

“However, coming off a low base, we see immense potential to grow the pie (Per Capita GDP), creating justification for further investment in the sector.”

FBC said overall, the Zimbabwean economy was under-banked given the larger population of the country was either unbanked or excluded from the financial system. The securities firm said a significant portion of people with access to financial services had very basic forms of services – limited use of plastic money, mobile banking and other advanced ancillary services.

On the investment side, FBC said there was a large number of unbanked people, creating scope for more business and higher margins, adding there was room to increase the assortment and scope of available services and opening up diversified revenue streams for the sector in areas such as mobile banking, plastic money and other ancillary services.

The rationalisation of the legal landscape with regards to indigenisation and empowerment laws was expected to ease uncertainty in the sector, FBC said.

Key sectors remain unfunded despite displaying immense potential for profitability, given adequate support. This profitability of key sectors would have positive spill-over effects in the banking system.
On the downside, FBC says potential populist policies and funding constraints could hamper economic growth prospects thereby affecting the credit creation role of the banking sector.

Banking sector overview
Zimbabwe’s banking sector comprises 22 commercial banks, four building societies, two merchant banks and one savings bank. The bulk of market share is accounted for by the big five banks (CBZ, Stanchart, Barclays, Stanbic and BancABC.)

FBC says growth in key sectors of the economy has been stunted by easing international commodity prices, squat investment, constricted credit conditions and extended policy uncertainty in the post-election environment.

Private investment is projected at 6,3% of GDP in 2013 while public investment remains low at 4,4% due to the overcrowding effect of recurring expenditure.

The trade deficit is seen widening under pressure from volatile global commodity prices and lack of competitiveness and downside risks associated with the fragile global economy and limited capacity in key sectors. Capacity utilisation in the manufacturing sector slid by 5,3% to 39,6% this year, compared to 44,2% in 2012. Cumulatively, capacity utilisation has plunged by 17,4% since 2011.

The mining and agriculture sectors are expected to continue as leading contributors to exports and national output while the implementation of the staff-monitored programme with IMF and the World Bank is expected to aid in external debt relief despite signs of the process stagnating largely due to the political processes,the FBC report said.

“Proper implementation will have a profound effect on the ability to source e-technical support,” the report said.

Going forward, FBC says a Memorandum of Understanding (MoU) signed between banks and the Reserve Bank of Zimbabwe early this year will continue to exert pressure on margins in the form of higher cost of funds and commission income. Financial creativity was needed in circumventing the downside effects of the MoU.

The stockbroking firm also sees increased central bank regulation in a bid to ensure adequate capitalisation levels as well as ensuring systematic stability through compliance with global banking supervision frameworks like Basel, adding pressure to adhere to specific lending guidelines to support the economy could be exerted.

“A less aggressive drive towards enforcement of the indigenisation and empowerment law in the financial services sector is expected from the new government, cognisant of the sector’s sensitivity and the role of financial intermediation to economic recovery and growth.

Industry’s facade is set to change as corporate finance and restructuring activity gains momentum from capitalisation endeavours.

Acquisitions, disposals, equity partnerships and convertible financing arrangements are expected to mark the landscape of the financial services sector in the coming period,” said the brokerage firm.

“Recent capitalisation thresholds and the MoU are all a thrust towards creating a sound banking system. Gazetted capital thresholds give the sector the muscle to prudently underwrite more business.

Politics is now water under the bridge. At the moment, the thrust is of economic centre force creating an enabling platform for business recovery, growth and development across all sectors which produces a multiplier effect on the sector.”

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