Small banks fight for market share

By Martin Kadzere
THE reluctance by foreign-controlled banks to lend could backfire as the smaller players seems to have found an opportunity to boost their market share, analyst say.
The Reserve Bank of Zimbabwe recently indicated that some multinational banks operating in the country were sitting on huge deposits while the economy continued to face liquidity constraints.
Foreign-controlled banks – Barclays, Stanbic and Standard Chartered – were among the banking institutions with the lowest loans to deposit ratios (LDR) last year.
Statistics released by the central bank showed that Barclays had the lowest LDR of 25,23 percent, having advanced US$43,6 million from deposits of US$172,9 million.
LDR for Stanbic stood at 33,9 percent as the bank advanced US$100,5 million from deposits of US$296,6 million.
CBZ remains the dominant player in granting loans with a market share of 25 percent.
A comparison between Stanchart and Interfin shows that the former, with a deposit base of 8,5 percent, had a loan market share of 6,6 percent.
This was way below the latter’s loan market share at 7,9 percent but with a market deposit base of 4,9 percent.
Analysts said the current scenario presented an opportunity for small banks to gain market share from established banks with a low LDR as individuals and the industry have a huge appetite for credit.
“Banks with a high LDR earn more interest on funded income, a reflection that they are aggressive on the market and surely they will fight for the market share,” said one analyst.
The core business of banks is to advance loans to individuals. The banks that have low LDR are surviving on income from non-core business, that is non-funded income and this might not be sustainable in the long run.
“In the short run it might work but it is not sustainable, especially with the cutthroat competition in the industry where new players are coming in,” said the analyst.
However, some observers said the biggest challenge was the incapacity of smaller banks to handle huge business volumes.
“While the chances are high that smaller banks could snatch the market share from traditional banks, the challenge is that our banking system is still weak.
“It needs to be financially equipped to subdue the negative approaches (on lending) by foreign-owned banks,” one observer said.
A study done by Interfin Securities has noted that Stanchart and Barclays, who traditionally have a market share of above 10 percent, are slowly losing deposits to banks such as BancABC, FBC and Interfin.
“We are of the view that if traditional banks with foreign ownership continue to be undecided about lending and other activities, they might find it very difficult to retain the market share, especially with the entrance of new players such as Trust,” said Interfin.
Trust, known for its service excellence prior to the banking crisis in 2004, was the biggest bank by deposits and profitability. It would also not be surprising that Ecobank-owned Premier Bank would also make a huge impact.
Interfin Securities has forecast that Barclays, which has the lowest LDR, will make a US$6,12 million loss for the year ended December 31 on the back of a slow- down in lending.
CBZ, which had the highest LDR, is expected to make a full year profit to December 31 of about US$19,4 million.
However, one investment analyst with a leading financial institution had a different view on the reluctance by foreign banks to give credit.
“In my view it’s more to do with an illiquid market with a handicapped lender of last resort. RBZ was given US$7 million for liquidity purposes when banks are sitting on US$2,5 billion deposits.
“Assuming that banks advance 90 percent of these deposits to the market, and then we have a sudden increase in demand for these funds from depositors, banks will have no fallback to cover the demand gap as RBZ is only able to support them to the tune of US$7 million,” he said.
“Liquidity on its own can cause a bank to close even if it is operating profitably.
“Banks naturally would prefer to take a cautious approach and try to match their core deposits to their loans and use the balance of the deposits for day-to-day liquidity requirements.”