Banks turn to product shaky economy threatens shareholder value

The economy was shaky in the first half of the financial year 2023, faced with a surge in inflation, subdued aggregate demand and currency depreciation.

ZIMBABWE’S banking sector has shifted to product innovation in order to generate value for shareholders and rebuild lost confidence as the operating environment remains unstable.

The banks say the current environment requires the preservation of capital against potential loss of value due to currency devaluation.

The economy was shaky in the first half of the financial year 2023, faced with a surge in inflation, subdued aggregate demand and currency depreciation.

The banking sector players have, over the years, been strengthening their balance sheets in a bid to preserve value for shareholders in the face of these economic ills, at the same time reclaiming the long lost confidence in the financial services sector due to legacy issues.

 A look at the sector’s financial statements for the year ended June 30, 2023 show that increased digitisation within the sector has led to fees and commission income becoming a major income line, with the recent  destabilisation  in the local currency leading to  a resurgence in revaluation gains.

Quality of earnings for the sector, therefore, became compromised on account of subdued lending and deterioration in the official currency.

 However, while the profitability metrics for the sector were generally in line with regional averages, the sector expressed the need to improve product offering on the markets as non-funded income continues to dominate the total income for the sector.

All the banks also remained optimistic that 2023 will yield results despite the prevailing challenges.

In its statement of results, ZB Financial Holdings said in the medium to long term, the group continued with its digitalisation journey with more focus on implementing robust and state of the art core banking and life assurance systems in order to enhance efficient products offerings that provide value and convenience to their customers.

 The group said prudent investment and cost containment measures will continue to be a priority in order to boost profitability.

“The group will continue to develop strategic business partnerships with real sectors of the economy, enhance sustainable revenue streams, especially foreign currency revenues and take advantage of investment opportunities in order to preserve its capital position against possible loss of value from currency depreciation,” ZB said.

State-run mass market lender, POSB on the other hand relayed that the bank is determined to continue creating value for its stakeholders through consolidating the current products and services and the timely introduction of new offerings.

The bank added that it will continue to use its wide service centre network, digital channel and agent’s network in order to provide efficient and convenient services to its customers.

Ecobank continued to introspect and improve on seamless customer experience by promoting flexible customer feedback, addressing pain points and staff training.

NMB Holdings highlighted that attainment of macroeconomic stability will be primarily hinged on the continued tight stance on money supply and accelerated liberalisation of the foreign exchange market.

“The group will continue to explore opportunities for revenue growth and value preservation while forging ahead to achieve its strategic objectives,” the bank said.

Non-funded income continued to dominate, contributing 68% to total income versus 66% in the prior year with net fees and commission income growing 283,1%.

FBC Holdings said it remained alert to the evolving operating environment and is well-positioned to sustain both the capital preservation and growth strategies to sustain shareholder value.

“The measures instituted by the government and the Reserve Bank of Zimbabwe in the first half of the year managed to slow down inflation whilst also addressing speculative pricing tendencies,” it said.

“It is our expectation that authorities will ensure that the policies in place will address some of the economic challenges whilst at the same time creating an environment conducive for economic growth.”

Victoria Falls Stock Exchange-listed First Capital Bank said through its small and medium enterprises (SME) banking proposition, “we continue to offer unique banking solutions that are designed to help SMEs in scaling up their operations”.

 In the period under review, networking opportunities were created through SME expos and workshops to capacitate clients and help them leverage potential partnership opportunities.

In its analysis for the banking sector, Inter Horizon Securities (IH) noted that lending to productive sectors of the economy constituted 78,45% of the  total banking sector loans as at December 31, 2022, from 76,29% as at December 31, 2021, representing an increase of 2,16% from the previous year.

The firm noted that during the period, total banking sector deposits were largely made up of foreign currency deposits and demand deposits, constituting 64,24% and 28,89%, respectively.

“As at December 31 2022, commercial banks had the largest share of deposits constituting 91% of the total banking sector deposits, while the building societies sub-sector had 8,08%,” IH said.

“FCA  (foreign currency account) deposits which triggered the overall growth in deposits post translation into Zimdollars at auction rate are now a significant part of the base.”


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