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Kudzanai Sharara
Banking institutions seem to be the biggest beneficiaries of the Reserve Bank of Zimbabwe’s (RBZ) efforts to deal with the current banknote shortage, as well as its efforts to stimulate economic growth.

At least that’s what can be deciphered from the two sets of results released by local banks CBZ and MBCA.

While the RBZ’s directive to cap interest rates at 12 percent per annum saw banking institutions record declining interest income, the witch from banknotes to increased use of electronic based systems has helped banks make a killing at the expense of customers.

During the period ended June 30, 2017, interest income at both CBZ and MBCA came off by 9,23 percent and 8.36 percent respectively, following a directive by the RBZ for banks to cap interest rates at 12 percent per annum from 18 percent per annum in an effort to “enhance financial sector stability and stimulate production across various sectors of the economy”.

As a result, banking institutions saw their earnings from lending coming off with CBZ’s interest income, for the first six months of the year, decreasing by 9,23 percent to $81 million while MBCA’s interest income line came off by 8,36 percent to $8,0 million.

The fall is in spite of both institutions advancing more than what they did prior year comparative.

While the RBZ’s directive to cap interest rates seem to have taken income from the banks, its efforts to encourage the use of digital systems in the financial sector seem to have given banks more than what has been lost.

And this is through growth in non-interest income, the revenue that banks earn from areas outside their lending operations.

The portion of non-interest income to total income has significantly grown, coming in at 45,8 percent from 42,4 percent for CBZ and at 53,1 percent from 45,39 percent from MBCA.

Although this has helped boost banks’ income streams it has come at the expense of banking customers.

For instance the increase in MBCA’s RTGS processing fees from $585 479 to $1,13 million, a 93,13 percent increase, can only mean the current cash shortages have forced more clients to use the RTGS system as a form of payment, albeit at a malignant cost.

The staggering figure of $1,96 million from account maintenance fees, a 152 percent increase from $778 037 prior year comparative is also intriguing.

How did the bank achieve such phenomenal growth for account maintenance fees? Did it open that many accounts which should be more than the ones they already had, or there was an increase in the actual fees?

That’s beside the point though. The fact is, the banks recorded phenomenal growth in non-interest income with CBZ’s non-interest income increasing to $36,8 million from $31,0 million.

Although some of the changes might actually be attributed to new technologies and new opportunities available to banks, the RBZ’s indirect and direct hand has its fingerprints all over the results.

But is this an ideal scenario for banks. Is it healthy?

ZB Financial Holdings CEO Ronald Mutandagayi said the ratio of non-performing loans to total income should be only 20 percent while the balance of 80 percent should come from interest income.

He, however said the current economic environment does not encourage banks to lend with his bank having reduced loans by 2 percent.

“Credit creation has remained slow with facility utilization averaging 42 percent being affected by macro-level factors,” said Mr Mutandagayi.

Economist John Robertson said what banks are short of are “safe borrowers”.

“For the banks, the shortage of safe borrowers is more serious. What makes many of them unsafe is the shortage of good collateral,” said Mr Robertson.

He added that the consequential decline in manufacturing, and the subsequent shrinkage in business has undermined the value of industrial and commercial properties that used to offer excellent collateral for bank loans and as a result so banks cannot recover the debts that the properties secured.

In the short term, however, if this trend of an increased portion of non-interest income is sustained, it could reduce risk and enhance the banks’ diversification.

There are, however, fears that increased charges and fees might result in more customers shunning banks and in the process limit the banking sector’s ability to grow this income line.