adminthat have seen celebrated individuals entrusting their financial wealth in the custody of exclusive structures where owning an account has more to do with your name than your bank balance.
Zimbabwe has been no exception. However, in the midst of a struggling banking sector in Zimbabwe, one is justified to question the rationality of a so-called safe banking model.
Banks are no longer obliged to serve the community in which they operate.
Once they pay their taxes, they see survival and mere presence as a priority.
Indeed, they want to boast a clean book without any bad assets as symbolised by their non-performing loan ratios.
For instance, events on the ground at Barclays point to an asset book which remains solid, their balance sheet is reportedly to have increased by 8 percent to US$281,5 million on the back of 57 percent and 6 percent growth in advances and deposits respectively.
The quality of the advances book remains solid with impairments said to be less than 1 percent of the book.
Gross non-performing loans were 1,1 percent of advances, a capital adequacy ratio of 18 percent against a regulatory minimum of 12 percent not forgetting an impressive liquidity ratio of 58 percent.
By all measures, these are impressive figures but to what extent is the safe banking model they are adopting helping to create a strong and vibrant economic growth in a nation where entrepreneurship is on the rise.
We have an overcollaterised state with about 81 percent of loans being extended strictly on collateral basis.
I am not implying that banks should not be sensitive to risk of doing business, but once the bank becomes preoccupied with exterminating the risk ahead of its core business of advancing loans, then there is a missing link somewhere.
In an environment of developing economies such as China, South Africa and other emerging economies, the issue of bad assets is not unique.
However, when it becomes the last source of worry for a financial institution operating not only in a dollarised environment like Zimbabwe but in an economy where the business environment is unpredictable, questions are bound to be raised on whether banking has taken a new shape.
Does this then mean that banks should avoid loaning in order to maintain a clean book or rather just lend to trusted clients whose cash flows is guaranteed whilst shunning new business start-ups?
Barclay’s management argues that they are not focused on being ahead of the pack but rather on positioning for sustainable profitability.
This will give traction to those whose school of thought is seeing to it that such banks are indigenised considering the cost- benefit analysis will only leave the prestigious brand presence as a benefit with every other variable manifesting as a cost.
Ecobank from West Africa, Access Bank from Nigeria and a host of other players mostly from Kenya have been on a rebound after revising their banking model with the realisation that with Africa’s poverty remaining an indenture for the next couple of years.
The growth of banks therefore cannot continue to be premised on market skimming tactics.
Such West African banks had gone to the extent of advancing funds to small traders who operate in informal markets with merchandise being traded remaining a more convenient form of collateral.
This had seen these institutions growing at amazing rates with the recent survey by Forbes a testimony that of the surveyed top 200 banks in Africa, the greater chunk of the top 50 are from West Africa save for South Africa which is in the top five.
In Zimbabwe, banking is still limited to bringing a copy of an identity card, a copy of proof of residence and some frivolous underwriting which had continued alienating potential savers with white collar clientele still being revered.
At NMB Bank, they still believe in prestige banking which I am not sure is sustainable in this dollarised climate.
Indeed, it is true that NMB Bank is a well-run institution but its focus on the elite is not sustainable as prestigious clients have disappointed not only in the banking industry but also in clothing retail.
If such a model is considered safe at this juncture, therefore we are doomed in our quest to change the economic landscape since the source of liquidity will remain tight.
For NMB Bank, the balance sheet grew 35 percent to US$226,5 million on the back of a 37 percent and 20 percent growth in deposits and advances, respectively.
Gross non-performing loans to total advances deteriorated 15,7 percent from 8,6 percent.
Impairments as a percentage of the total book also deteriorated to 2,7 percent from 1,9 percent.
The group is said to target an NPL ratio of 5 percent for the short to medium term with a long term target of 3 percent.
Their target clientele is not sustainable as it is not consistent with the developments on the economic front.
The uncomfortable cost to income ratios for the market are impacting negatively on the bank bottom line and having a leaner advances book leaving a higher opportunity cost in terms of interest income.
At this juncture, skimming the clientele base can only help to aggravate the financial exclusion which is dragging the economic recovery, most Zimbabweans are unbanked with the official figure being put at about 68 percent.
It becomes unthinkable how the trend of deposit accumulation will peak when banks are still employing an exclusionary strategy.
The prestige banking model is but slowly losing traction with the safe banking argument remaining a disappointment to savers.
This could work in favour of financial facilities such as EcoCash.
Thank you and God bless you.
Christopher Takunda Mugaga is the Head of Research for Econometer Global Capital, a regional finance and economics research firm. He can be contacted on: [email protected] or +263 772 340 353, / +263 776 266 062
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