A Johnny-come-lately to the game?

Tawanda Musarurwa
Over the past few months, some sections of the financial services sector who are not quite in the know, have appeared to be concerned over the move by Standard Chartered Bank Zimbabwe to close a number of its branches, with a shift towards digital banking.

But it’s one way of focusing on operational efficiencies by reducing costs. Local banks now appear to be aggressive in rolling out digital platforms.

But it might be a stretch to say banks are a “Johnny-come-lately” to the financial services game. Or is it?

Zimbabwean banks are slowly, perhaps imperceptibly, losing their grip on the financial services sector.

Data from the Reserve Bank of Zimbabwe (RBZ) show that the number of active mobile financial services registered subscribers stood at 6,54 million during the fourth quarter of last year, up from 6,32 million recorded in the third quarter.

That’s just under half of Zimbabwe’s population, and it’s no mean feat if one takes into cognizance the high levels of financial exclusion that the country recorded prior to the emergence of mobile telecommunication companies’ mobile money platforms.

Notwithstanding, the provision of facile transacting services, players like Econet’s Ecocash platform have expanded to include a broad array of financial services, including credit, insurance, and cross-border remittances.

“New banking business models now require banks to diversify income streams away from the traditional interest income by generating commissions and transactional revenues elsewhere.

“We feel most banks in Zimbabwe ‘left money on the table’ and will now have to pay for their dormancy, particularly in areas relating to payment solutions,” says analysts at stockbrokers Morgan & Co.

“Mobile money, for example has proved to be a transformational service that has brought financial services to the unbanked and has spread throughout the emerging economies at an unprecedented rate.”

For the third quarter of 2019 alone, the country’s mobile money platforms had transacted $575,3 million.

The major advantage of telecommunication firms over traditional banks in the financial services game is that they came through as the technological pioneers.

And technology can enable financial institutions to use their time and resources more efficiently. But local banks are now only moving to catch up.

Official figures show that banks have been moving to increase their mobile banking agents. Statistics from the central bank show that the number of mobile banking agents increased to 59 219 in the fourth quarter of 2019, from 55 404 reported in the third quarter.

But for banks, as indicated earlier, the issue is not just about catching up technology-wise, but they have legacy issues such as a number of properties spread across the country that have significant maintenance costs.

Then there are minimum capital requirements, which were increased recently.

Even though mobile money platforms do fall under the purview of the RBZ, the ground remains uneven, particularly as relates to the issue of minimum capital requirements.

Observers have projected that the country’s financial institutions are likely to find it difficult to meet the new minimum capital requirements as a result of the depreciation that occurred following the move by the country to de-dollarise.

Large indigenous commercial and foreign banks are now required to hold minimum capital equivalent to US$30 million, while other commercial banks, merchant banks and building societies now require the equivalent of US$20 million.

But observers say the depreciation of the local currency that largely took place will make it difficult for banks to comply, especially as players in the sector are facing stiff competition from the mobile telecommunications companies.

The Zimbabwe dollar is trading at around 18 to the United States dollar on the interbank market.

“This is a new headache for bank CEOs and shareholders given that most banks in Zimbabwe are still trying to recover from the scourge of value-destruction that emanated from the hyperinflationary environment,” said Morgan & Co.

The financial sector’s precarious standing is highlighted by an analysis by Imara Asset Management, which says the local financial services sector’s fundamentals have been “weak” for quite some time now.

“First, the bulk of bank deposits are demand deposits. This explains the large amount held in the banking system to cover customers’ use of swipe cards and mobile money. Second and more concerning is the level of bank capital and reserves which stood at $3,9 billion or just US$257 million.

“This compares with ‘other liabilities’ that have grown rapidly to $4,6 billion (US$300 million) which we have to assume are foreign exchange linked liabilities given their rapid rise since February 2019 when they represented 31 percent of bank capital. This is another scary number that we would like to look into in greater detail as it might be highlighting the possibility of a bank or banks failing.

“Put another way, banks need to maintain very high liquidity levels and restrain from lending medium and long term either to Government or the private sector. We noticed this at the end of last year when a number of the listed companies we speak to highlighted the difficulty of obtaining loans of any meaningful amount from their banks,” said Imara chief executive John Legat in a recent note.

“Further in our last Notes we made mention of the fact that bank balance sheets were falling rapidly in real terms as compared with their client base as a result of bank assets largely being held in Zimbabwe dollar-denominated assets, whilst their clients’ revenues and profits could move more in line with inflation. Put simply, banking sector borrowers have become far greater in balance sheet terms than the banks themselves.”

With the rise and growth of mobile money services over the past two decades, which are becoming almost ubiquitous, banks need to up their game.