BANKS are seen reporting modest profits for the full year to December 2013 due to macroeconomic challenges largely stemming from uncertainty that characterised the election year and the full impact of the memorandum between them and the Reserve Bank of Zimbabwe (RBZ) that put a cap on interest rates and fees is felt, analysts say.
This comes after Barclays Bank of Zimbabwe (Barclays) this week became the first bank to announce its full year financials for 2013 with a 5,3% growth on total income to US$38,8 million slowed down by the effect of capped charges and commissions, according to chairman Antony Mandiwanza.
While the better capitalised and more prudent foreign banks will report good profits, indigenous banks are expected to post losses in the reporting period that has just started, top Harare-based economist John Robertson said.
“The first half of the year was characterised by uncertainly as people waited for the July elections and the second half was worse after the results hence a generally depressed performance is expected,” he said in an interview this week.
“Banks were uncertain and unlike other businesses, they need a predictable environment such that they can lend more and earn more from the interest income.”
Banks also suffered from panic withdrawals after President Robert Mugabe’s election victory amid fears of an immediate return of the Zimbabwean dollar.
Robertson said the situation was yet to improve, adding fresh foreign capital was needed to breathe life into the economy currently suffering from acute liquidity challenges.
“Prospects going forward do not look good, but they could be a lot better if investors were injecting money into the economy,” he said. Econometer Global Capital head of research Takunda Mugaga said the memorandum of understanding signed between the central bank and local financial institutions to put a ceiling on bank charges and fees last year took a toll on profits.
The MOU required that lending rates be pegged at 12,5 % while cash withdrawal fees were set at a maximum of 5% of the withdrawal with a minimum of US$2,50 and ledger fees, maintenance and service fees were set at US$4 per account.
The MoU has since been scrapped. Mugaga said other macroeconomic challenges that hampered banks in 2013 apart from the disruptions caused by elections include increasing financial exclusion as more people lost jobs and high bank charges.
“Foreign banks as I said will experience a marginal improvement in bottom line from the 2012 levels as the indigenous banks drive losses steam,” Mugaga said, adding “indigenous banks are worse off.”
Already, NMB has warned of a loss for the year to December last year. The group said the board has reviewed the banking subsidiary’s loan book and has increased the impairment losses on loans and advances.
Analysts say more banks could be forced to make provisions like NMB going forward. According to the RBZ non-performing loans are at 15,92% at year end.
This comes after NMB in its financial results for the half year ended June 30 2013, reported non-performing loans were at US$41 977 499 from US$23 996 312 recorded in December last year, raising fears the bank was not very aggressive in collecting money from clients.
A non-performing loan is either in default or close to being in default. Once a loan is non-performing, the odds that it will be repaid in full are considered to be substantially lower. Mugaga contends banks are suffering from huge non performing loans that are threatening survival of some institutions.
The Bankers Association of Zimbabwe (Baz) last year said banks stood to collectively lose US$73 million as a result of the MoU.
Baz said most of the banks were unlikely to meet the minimum capital requirements of US$100 million by June 2014 as a result of the revenue loss. The capitalisation deadline has since been moved to December 2020.
Meanwhile, analysts say weak earnings growth and declining earnings are expected for most companies owing to the economic environment in the broader economy.