Banks Profiteer from Economic Challenges Facing Zimbabwe

Financial institutions are making strong profits due to economic challenges facing Zimbabwe, a researcher says.

The profits are derived from the use of electronic money which has been increasing due to cash shortages and also treasury bills (T – bills) interest payments according to Fitch Solutions.

“Indeed, rather than an indication of the good health of the banking sector, we believe that the headline numbers are a result of a dearth of hard currency in circulation, which is preventing banks from fulfilling their traditional role of allocating capital to productive activities,” the researcher says.

“While the introduction of a new exchange rate system in February was meant to address the insufficient access to hard currency in the Zimbabwean economy, this issue will continue to undercut growth and lending to the private sector.”

The analytical researcher predicts that Zimbabwean financial institutions will continue with the continued use of electronic money in the country.

Electronic money has been rising with cash remaining a scarce shortage in the country.

“In recent quarters, income from fees and commissions on card and internet transfers has become the largest source of revenue for banks as the population has had to increasingly rely on electronic money in the dollar-starved economy,” Fitch Solutions says.

“After the banking sector posted a 76.7%y-o-y rise in aggregate net profit for the January – September 2018 period (largely due to a rise in non – interest income from transaction fees and t – bill interest payments), we believe that these charges are likely to continue to boost profits for the sector across our short-term outlook.”

Banks’ withdrawal fees in Zimbabwe charging at up to 2.0% have been costing up to 40 cents for taking away amount less than US10 from the banks and 50 cents for cash above.

The Zimbabwean government, which has not been able to borrow money from international financial institutions, targeted local banks through the use of T- Bills to finance a deficit.

Domestic debt has, however, risen to around US$9.5 billion in the process.