Fee and commission income will propel banking sector’s profitability as the cash-starved economy resorts to more cashless transactions, a research firm has said.
BY TATIRA ZWINOIRA
In its report, Zimbabwe Economic Review and Outlook, Econometer Global Capital said the continued use of bank transfers and card payments will support deposit growth.
“Strong fee and commission income will continue to support profits, which grew from $181,06 million in 2016 to $241,94 million in 2017. However, rather than being indicative of good health of the banking sector, we believe that these headline numbers are a result of a dearth in currency in circulation, which is preventing banks from fulfilling their conventional role of allocating capital to productive activities,” it said.
The research firm said deposit and asset growth would remain robust this year.
“However, rather than being signs of strength for the sector, these factors are the result of a challenging macroeconomic environment in which hard cash is scarce. Strong fee and commission income will be the main driver of profits, as the cash-starved economy will continue to rely on bank transfers and card payments as the primary forms of transactions,” it said adding that banks would continue to ration cash withdrawals.
NewsDay reported last week that non-interest income was contributing more to banks’ total income than net interest income. This was buoyed by the growth in cashless transactions.
The growth in non-interest income points to banks investing more in information technology systems and wanting to earn profits in a less risky way than lending to individuals.
“Non-performing loans are also starting to grow among some banks and even the microfinance sector, which may negatively affect credit growth,” the research firm said.
According to the central bank, plastic money grew 210% in 2017 to reach more than 80% of total retail transactions in the country.
In his monetary policy statement, central bank governor John Mangudya said the bank “is further accelerating efforts towards a cash-lite society by the adoption of friendly banking and plastic money payment platforms such as tap-and-go systems and pre-funded cards to enhance the ease of transacting and ease of passage at tollgates within the country”.
Analyst say these measure will further increase fee and commission income for banks.
However, while strong fee and commission income is expected to record profitability on the back of cashless transactions, the research firm said hard cash was expected to further register a decline, leaving depositors to continue to struggle to get cash.