Banking sector half-year profit declines

Banking sector half-year profit declines
Published: 01 November 2013
TOTAL after tax profit for local banks reporting half-year results for the year ending June declined to $52 million from $63 million following an agreement to lower bank charges, a local brokerage and advisory firm has reported.

According to the MMC Banking sector survey for the period under review, the signing of a Memorandum of Understanding putting a cap on bank charges and interest rates in February affected profitability in the financial services sector as bankers engaged the central bank over the matter.

Financial reports for thirteen (13) Commercial banks, three (3) Building Societies and one (1) Savings bank were analysed in this report.

"Total profit after tax for the reporting banks amounted to $52,1 million for the half year ending 30 June 2013 relative to $63,3 million in 2012. The deterioration in earnings was partly due to the Memorandum of Understanding (MoU) which took effect on the 1st of February 2013," read the report in part.

"The signing of the MoU with the central bank resulted in banks taking a knock in non-funded income. Historically, Non-funded income has been the major contributor to most banks' revenue and the MoU was a major blow to the top line. Yields on assets were capped whilst the cost of funds was growing. For most banks, Interest expense has been growing ahead of interest income, tightening the margins."

This came as most banks have embarked on growing their e-banking transactional activities in a bid to restore the lost revenues. E-banking channels are cheaper than the traditional channels and the growth in e-banking-related transaction reduces costs. Cost to income ratio, according to the survey, remained relatively flat at 72%. Total banking assets grew by 19% from $4,35 billion as at June 2012 to $5,16 billion as at June 2013.

"The outlook for the economy remains fraught with uncertainty as the national savings rate has been declining and is faced with heightening headwinds. Liability gathering is likely to prove to be a challenge as low income growth and weak investor confidence will militate against deposit mobilisation from the unbanked population. As the dust which was caused by the MoU is yet to settle, the introduction of the EcoCash Save, in our view, is likely to be another game changer going forward," the report added.

- newsday
Tags: Banking,


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