Zimbabwe banks opt for investment securities

Published: 06 September 2018
ZIMBABWEAN banks are slowly increasing capital allocation towards investment securities after controlled lending rates put pressure on the sector's profits in the half year to June 2018, The Financial Gazette can reveal.

Lending rates are pegged between six percent and 12 percent, depending on the lender's risk profile.

However, interest rates on deposits that were generally subdued in recent years are on an upward trajectory, according to bankers.

" …we have been seeing interest rates for deposits starting to creep up, this is partly due to the RBZ savings Bond where people have an option to invest money at seven percent," Benson Ndachena, NMBZ Holdings (NMBZ) chief finance officer said at the company's analyst briefing last week.

"What we have is an interest rate that is controlled on the loan side and an interest rate that is going up on the deposits sides and therefore the margins will get squeezed," he added.

The net interest margin squeeze has created pressure on banks to turn away from traditional capital allocation, which would ideally be dominated by loans and advances, in favour of allocation of funds to other asset classes and activities.

Over the past 18 months, local banks have been focusing more on channels of non-interest income.

In addition to pivoting other asset classes and non-funded income activities, NMBZ said it was focusing on pushing volumes on loans and advances to maximize profits from lending.

NMBZ's net interest income for the six months ended June 2018 increased by 36 percent to $15 million from $11 million in 2017.

The bank's loans and advances grew by 8,4 percent to $228 million from $210 million as at December, 2017.

"Hopefully, if things were liberalised then we would have a situation where interest rates would fluctuate on both sides but at the moment we are faced with a scenario where loan side rates are controlled and the deposit side rates are creeping up," Ndachena said.

Zimbabwe's largest financial services group by asset base, CBZ Holdings (CBZ) says it has been swiveling to non-funded income activities to ease the pressure on net interest income.

"With our margins being squeezed as a result of rate fluctuations, it was important for us to focus on non-funded income, and we have done very well in that respect, our revenue growth over the first six months of the year 2018 was driven by non-funded income to minimise the pressure on interest income," Colin Chimutsa, CBZ chief financial offer said at the company's analyst briefing last week.

Non-interest income contributed 51,2 percent of CBZ's earnings over the six months to June 2018 after contributing 45,8 percent in 2017.

The contribution of net interest income dropped from 45,6 percent to 43,7 percent over the same period.

The bank's total net advances shrunk from $941 million as at December, 2017 to $768 million as at June, 2018

The banking industry's lending appetite has been waning as shown by falling loan-to-deposits ratios across the industry.

According to the central bank, the industry's average loans-to-deposits ratio fell from 56,64 percent as at December 2016 to 44,81 percent by December 2017, the benchmark is 70 percent.

Meanwhile, banks have grown fond of investment securities, particularly Treasury Bills (TBs), which have been very popular with banks despite warnings from some analysts that exposure to the securities may be dangerous. Banks have however dismissed the concerns around the securities.

"…what is important is that they are issued by the Zimbabwean government, which also regulate us… you cannot worry about the government not honoring TBs and not worry about them waking up one day and ordering you to close shop, because they issue the license and they issue TBs, so if you respect the banking license, you should also respect the paper," Blessing Mudavanhu, CBZ's chief executive said in response to concerns on TBs, while speaking at the briefing last week.

- fingaz
Tags: Banks,


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