ZIMBABWE INDEPENDENT BANKS AND BANK SURVEY 2020 MAGAZINE

Survey 2020

Reimagining

Banking:

Beyond Survival

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Survey 2020

Contents

58

08

The Editor’s Note

Sponsor’s Foreword

36

iMpaCT OF

COviD-19 On

The Banking

SeCTOr

02

04

28

Adjudicators’page

Citations 30

Winners

32

08

10

14

22

24

OvervieW OF ZiMBaBWe’S

Banking anD FinanCiaL

SeCTOr

LenDing in a ShiFTing

Terrain

uS DOLLar anD The

reSTOraTiOn OF The

Banking COnFiDenCe

STaTe OF COMpeTiTiOn in

The Banking SeCTOr

Bank CapiTaLiSaTiOn

anD The pOLiTiCS OF

unCerTainTY in ZiMBaBWe

Reimagining Banking Beyond Survival.

THE performance of Zimbabwe’s banking sector

in 2020 remained largely constrained by the

economy as perennial challenges of cash (both

local and foreign currency) continued to bedevil

the sector.

The country’s shift from a multi-currency

system to a monocurrency regime failed to bring

economic relief as supply and distribution of

foreign currency and local currency hampered

trade.

The monetary changes also resulted in rapid

policy progression from a fi xed rate system to a

controlled fl oating rate system.

The informal market also promoted currency

slippages as premium rates were offered and

have remained prevalent to date.

As the economy bleeds, banks are reeling

from a plethora of challenges that include high

costs, an unstable exchange rate, low capacity

utilisation and runaway infl ation that has fl uctuated

and reached a peak of over 800%.

This year, local banks hiked transactional

charges by as much as 900% as pressure

mounted on the fi nancial intermediaries to remit

United States-dollar-denominated payments to

services rendered by their offshore suppliers.

Much of the foreign currency being

generated in daily trade is not being banked

because generally most people no longer trust

the banking system.

This limits the revenues for banks that also

have most of their revenues in the Zimbabwe

dollar yet most of their costs are now indexed to

the US dollar.

Poor corporate governance, insolvency and

imprudent lending activities, worsened by low

confi dence in the banking sector have crippled

the sector.

This is due to high transactional costs and

marginal rates on deposits have also been a

constraint on banks.

The evolution to digital platforms also saw

some banks downsizing as they closed down

some of their branches.

The increasing number of microfi nance

institutions also means more competition for

commercial banks as many consumers choose

MFIs’ because of their fl exibility when it comes

to collateral.

This is another grey area for banks as times

keep changing.

In the midst of all these woes the emergence

of the Covid-19 pandemic brought its own

challenges that forced banks to change the way

they conduct their business.

The RBZ recently increased its policy rate

from 15% to 35% while the medium-term bank

accommodation rate was also reviewed from

10% to 25%.

This removed the implied interest rates

cap of 20% for banks that accessed the MBA

(medium-term-bank accommodation) facility,

which was seen as one of the factors promoting

sub-infl ation returns.

The move is now expected to steer more

core lending activities, although naturally in real

terms, returns remain sub-par.

While there are expectations that an

economic rebound post lockdown in FY20 will

offer slight reprieve to the banking sector at large,

the impact of Covid-19 and inconsistent policy

changes have also been an albatross on fi nancial

institutions.

Having said that, banks need to restrategise

to enhance their chances of survival in these

ever-changing times.

Against this backdrop we coined this year’s

theme: Reimagining Banking Beyond Survival.

This 2020 Banks and Banking survey edition

looks at how the banking sector can bring back

confi dence as people now prefer other methods

of saving their money.

It also answers the questions of digitisation,

the question of lending in this shifting terrain,

state of competition within the sector as well as

capitalisation in these diffi cult times among other

topics.

This project wouldn’t have been a success

if it wasn’t for the unwavering support from our

premier sponsors, First Capital Bank (FCB), our

research partners Equity Axis as well as all the

contributors to this issue.

We are hugely indebted to you.

Happy reading

Melody Chikono

Banks & Banking Survey

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Samuel Mapuranga

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Survey 2020

02

BANKS& BANKING SURVEY 2020

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Foreword

Ciaran McSharry FCB MD

‘Reimagining

banking

beyond

survival’

AS we wrap up the year it is important to take

a moment to introspect, revel and perhaps give

ourselves a pat on the back for having made it

this far. Considering the journey travelled to date

this has not been an easy year. 2020 unfolded

in an unpredictable nature with far reaching

implications due to the unprecedented Covid-19

pandemic. Whilst as a sector we have a culture

of business continuity management, none of our

strategic plans would have forecast a crisis of

this magnitude. What is more of a conundrum

is that no one can accurately predict when the

pandemic will end. However, life and business

must continue, and we must reset to the ‘new

normal’ and move away from a ‘wait and see’

phase.

Our challenge as an industry is how we can

reimagine banking beyond survival and what this

means as we forge ahead. During the onset of

the lockdown period we enhanced our digital

service capabilities at an accelerated rate to

serve the essential services framework and our

customers. This was to ensure the continuity of

our business and ultimately supporting the men

and women working in critical services.

Over the past months we have all learnt

valuable lessons that have been key to the

sustainability of our businesses. We have learnt

to be nimble, how to navigate within nearimpossible

environments due to the pandemic,

to assure the practicality of our business continuity

resumption plans and so on. We have also had

to anticipate our customer needs by stretching

our imagination overnight in what we knew as

unchartered territory. It has become clear that

as a sector we need to execute value adding

solutions ahead of customer needs.

As the financial sector our intermediary

role is vital within the economy as it enables us

to mobilise resources and channel investment

potential within the industries we serve. Our

operating environment has also evolved to

facilitate a market self-correction through

developments such as;

- Introduction of the foreign exchange auction

system in response to the volatility in the

pricing of goods and services due to the

rising parallel exchange rate premium. This

has replaced the fixed exchange rate system

with a foreign exchange auction system that

runs weekly.

- Supporting the auction from domestic forex

resources.

- Bank policy rates were reviewed upwards

from 15% to 35% to curb speculative

borrowing and manage foreign exchange

pressures. This was to reduce excess

liquidity on the market which could be

channeled towards purchasing of foreign

currency again putting pressure on the

exchange rate.

- Open Market Operations Instruments

(OMO) presented an opportunity to allow

those with excess liquidity to preserve value

without destabilising the exchange rate.

- Renewed efforts to facilitate integration of

payment systems and promote efficiency of

payment services, for the convenience of the

transacting public.

Whilst we consider the above interventions

as banks, we also have the responsibility to

look beyond the needs of today and anticipate

a better tomorrow. It is clear the transacting

consumer habits have gone digital. The onus is

on us to lead the digital penetration strategy that

will adequately serve the public. Going beyond

survival may include;

- A world of digital excellence characterised

by robust cyber security risk and consumer

protection.

- Our innovative efforts will require adequate

research and development to obtain intricate

insights on our consumers, knowledge

sharing and a global perspective to bring

global standards to our way of business.

- Whilst we go digital Financial Inclusion

remains key; meaning our digital penetration

strategy and solutions must cater for the

different customer segments and address

knowledge gaps. This means our

responsibility will not only be in product

development but also educational and

infrastructure interventions that will assure

digital penetration is all parts of the country.

It is crucial that we leave no individual behind

and collaborate to bring viable solutions as an

industry.

- Improve the customer experience journey

at every opportunity. As an industry we may

set benchmarks that are adhered to as we

build the consumer confidence in the sector.

Looking around us we see the playing field

is changing and a lot of non-traditional players

are tapping into our sector meaning our

service needs to be outstanding and available

on omni-channels to ensure it is easier for

customers to transact.

- As an industry we need to collaborate by

creating a culture of enhancing partnerships

across the market. Our sector is rich with

skills, knowledge and expertise. Let us share

our best practices and develop our

landscape. We offer diverse services that

serve different sectors optimally, our

distinctive competencies are also different

and make each organisation stand out. There

is an adequate platform for all of us to shine

and leverage on our strengths and expertise

by proactively serving the market.

As First Capital Bank collaboration and

service excellence are part of our core values that

underpin how we do business. We have already

tapped into strategic partnerships with innovative

and renowned organisations with proven track

records such as Ria Financial Services and

ZimNat to unpack relevant and sustainable

financial solutions for our customers. These are

Ria Money Transfer and Gadziriro Insurance

respectively, with a lot more in the pipeline.

Our new core-banking system provides us with

diverse digital capabilities that we will soon roll

out. We will continue in this positive trajectory by

exploring opportunities that enhance our offering

and bring us closer to our purpose of ‘enabling

people to achieve their extraordinary’.

We are confident that the future will be

lucrative and that the banking sector has what

it takes collectively to move beyond survival. In

reality…we may already have!

#BeliefComesFirst

#ProudlyFirstCapitalBank

04 BANKS& BANKING SURVEY 2020



Proudly Sponsored by BANKS& BANKING SURVEY 2020 05


Overview of

Zimbabwe’s

Banking and

Financial Sector

BY TaFara MTuTu

IN any country the banking and fi nancial sector

has been at the heart of economic growth since

the dawn of civilisation.

This could not be truer in Zimbabwe, given

that the economy is predominantly cashless

and almost all transactions are facilitated by the

national payments system (NPS).

The performance of this sector is so

pervasive that its performance is positively

correlated to economic performance.

Policies in Zimbabwe have also been

inextricably intertwined with this sector, from infl ation

rate targeting through money supply to supporting

government programmes through banks.


What this means is, in essence, an overview

of the sector serves as a good proxy for the

current state of Zimbabwe’s economy.

Zimbabwe’s banking and fi nance sector is, at

the very least, quite unconventional.

This is underpinned by myriad countryspecifi

c risks that often prompt the sector to

respond in kind.

This year, the sector’s development revolved

around improved regulation of transactions

and mopping excess liquidity, all in an effort to

contain runaway parallel market exchange rates

in Zimbabwe.

Earlier this year, the central bank carried

out an investigation into the abuse of EcoCash

by illegal parallel market players who were

alleged to be the force behind the black-market

exchange rates and, in turn, infl ation rates.

EcoCash had also been under scrutiny by

the Bankers Association of Zimbabwe (BAZ) for

performing the roles of a bank while disguised as

a payment platform which allowed the platform

to operate as a bank without the stringent

restrictions, requirements and charges borne by

a typical bank.

This prompted tighter regulations by the

central bank and resulted in mobile money

platforms being mandated to scratch all agent

lines and fully integrate with the national

payments ecosystem.

As a result of this integration, banks and

mobile money platforms can now fl uidly facilitate

transactions, and one can move funds from one

mobile money platform to another with ease.

to page 8




07


from page 6

The auction

system that

was launched

in June 2020

moved traffic

from the parallel

market....

IT is also interesting to note that conventional

banks emerged winners at the unfortunate

expense of EcoCash on this directive.

Given that Ecocash had brilliantly tapped

into the unbanked population that accounts

for 47% of Zimbabwe’s adult population and

mobile money operators’ 23% contribution to

total transaction values in 2019, the integration

has given banks unlimited access to potentially

additional business without having to drop a dime

for it.

The parallel market exchange rate that

galloped from ZWL22,8/USD at the beginning

of the year to record highs of ZWL120 during

the year was the driving factor that underpinned

CPI (consumer price index) growth from 563,9

points in January 2020 to 2124,0 points in August

and prompted a response from the apex bank.

The RBZ began tightening money supply in

the economy through a number of policies that

include (i) introduction of the FX auction system

for major players and SMEs, (ii) increasing the

policy rate from 15% to 35%, and (iii) placing

limits on daily transactions on both mobile

money and bank accounts.

The auction system that was launched in

June 2020 moved traffi c from the parallel market

as market participants accessed FX at favourable

rates on the formal market. The parallel market

ZWL/USD rate subsequently fell from a range

of 95 – 120 to a lower range of 85 – 105, and

stability in local prices has been observed ever

since.

These efforts were also complemented by

an investigation into various stakeholders and

investors on the Zimbabwe Stock Exchange,

which took place during the month of July 2020

when the bourse was suspended, and the

introduction of the USD-denominated Victoria

Falls Stock Exchange.

Dual-listed counters, Seedco International,

PPC and Old Mutual Limited will be moved to

the new exchange and prevent speculative black

market pricing based on implied rates such as the

Old Mutual Implied Rate (OMIR).

Complimentary to the auction system was

the increase in the policy rate which addressed

the fl ow of cheap money into the hands

speculative parallel market traders. However, it

also limited the feasibility of various projects that

required debt funding despite a signifi cant gap

between the rate and infl ation rate fi gures.

The ability to create liquidity and push parallel

market rates was also mooted by daily ZIPIT and

mobile money transaction limits being imposed

on users of the services. ZIPIT transaction were

limited to ZWL$20 000 per day and $100 000

per month, while mobile money transactions

were limited to $5 000 per day.

These policies have carried downside

for local banks in the sector, whose interestbased

earnings and loan book quality have

been deteriorating in value throughout 2020.

However, these players have since responded

by increasing focus on digitisation efforts which

have plugged the drain in asset value.

In line with digital banking innovations by

the global banking sector, local players have been

rolling mobile banking applications which they are

constantly beefi ng up with additional functions.

The cost-effi ciencies of technology have

made it feasible for banks to fi t a banking hall in

the palm of one’s hand through these mobile

applications.

The migration to tech-driven models was

further necessitated by the Covid-19 pandemic

that saw the globe screeching to a standstill

between March and July.

Lockdown restrictions and social distancing

kept much needed traffi c away from banking

halls, and digital banking became the most

feasible solution. Thus, the pandemic arguably

incentivised the biggest leap in innovation in the

sector.

As a closing remark, the sector has proved

its importance in 2020 through these policies,

and its players have risen above the challenges in

ways that will change the way business is done in

years to come. Local citizens and business entities

can fi nally strategise without worrying about price

shocks and suppliers can sigh with ease as the

cost of doing business in the country improves.

Could this be the beginning of a new dawn

for the sector and Zimbabwe as a nation?

Mtutu is Research Analyst at Morgan & Co

E-mail:tafara@morganzim.Com 0774 795 854




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09


Lending in a

shifting terrain.

BY SaMueL Mapuranga

Introduction

WHILE there continues to be high uncertainty

about the containment of the Covid-19

pandemic, the virus has infl icted a huge blow to

the global credit economy and an elevated risk

for the rest of sub-Saharan African.

The conventional sources of data typically used

in credit-risk assessment became obsolete

overnight.

Subsequently, there has been severe

economic and credit costs refl ecting the network

complexities in the global economy.

Both supply and demand were equally

suppressed suddenly by the unique features of

the pandemic-triggered recession.

On the bright side, new approaches in

lending emerged, revealing a way forward by

which fi nancial institutions can use in assessing

the diverse impact of the coronavirus on different

sectors and subsectors of the Zimbabwean

economy.

Lessons drawn from the Great Financial

Crisis (GFC) of 2007-09, are banks were able

to design robust rapid credit policies, not only for

underwriting and monitoring but also for assisting

customers towards economic recovery.

As the Zimbabwean economy begins what

will surely be a long road to recovery from a

steep fall, fi nancial institutions have a crucial role

to play.

Whilst credit conditions are largely favourable

for many borrowers, pockets of risk are rising

particularly for fi nancial institutions.

Although the Reserve Bank of Zimbabwe

responded promptly, in line with its mandate

to preserve smooth market functioning and an

effective transmission of monetary policy, much

needs to be done now on supervision and

regulation.

In order to repair the economic damages

infl icted by the coronavirus pandemic, all players

– government, policymakers and banks – must

do more to support businesses to cope with the

next phase, which is building recovery from this

crisis.

Therefore, for banks, lending in a shifting

terrain requires creative approaches in acquiring

and utilising high frequency data in assessing

models of fi rms and households.

Zimbabwe is currently facing its worst

economic crisis in more than a decade, with

skyrocketing infl ation of 659, 4% year-on-year

in September, and acute shortages of foreign

currency, food, and medicine.

Regardless, authorities remain committed to

fostering credibility in its currency, the ZimDollar,

whose value has plummeted since it was

reintroduced in 2019.

Global Financing and Covid-19

There are expectations that all economies across

the world will register negative growth this year.

The negative impact of Covid-19 on capital

markets has been more signifi cant in SSA,

however equity and fi xed income markets have

taken a cautiously optimistic view.

Corporate bond spreads have followed a

similar trajectory, with the expected fl ight to

safety evident in government bond yields pushing

spreads wider.

This has generally impacted the global credit

market.

A normal dynamic will include occasional

and temporary swerves in either a positive or

negative direction otherwise this volatility will

persist even if conditions continue to loosen.

In its latest 2020 growth forecasts, the IMF

(International Monetary Fund) became more

bearish due to the fallout from Covid-19 on

emerging markets.

The global fi nancier estimated that SSA will

need approximately US$1,2 trillion through

2023 to repair the economic damage infl icted by

the coronavirus pandemic.

These conditions will further affect the

Zimbabwean economy as the nation continues to

be in debt distress with a huge and unsustainable

external debt of about US$10,545 billion

(September 2019) of which about 60,35% is in

areas.

Unlike the other 77 highly indebted

countries, Zimbabwe did not benefi t from the

G20 temporary suspension of debt payments to

enable response to Covid-19.

Again, a decline in economic activities in

Zimbabwe’s major trading partners such as South

Africa, has a knockdown effect on the economy.

Bank lending and Covid-19 impact

The spread of the coronavirus and the associated

containment measures have led to a shutdown

of economic activities during the fi rst half of 2020

also impacting the banking sector.

Since lockdown started in March 2020,

Zimbabwean banks have lent approximately

ZW$18,35 billion to businesses and households.

Figure 1 below shows sectoral distribution of loans

as at 30 June 2020.

Figure 1: Sectoral Distribution of Loans as at 30 June 2020

(Credit: Reserve Bank of Zimbabwe, 2020)

to page 12




Sp 4570_POSB


11


from page 10

Now, as the lockdown eases and economic

activity picks up, banks need to help businesses

by providing liquidity while taking cautious steps

on associated risks.

Most companies’ capacity utilisation declined

in 2019 prior to the pandemic.

Although Zimbabwean banks entered the

crisis with higher levels of capital and liquidity

compared to previous episodes, sharp tightening

in financial conditions, heightened funding stress,

and the major repricing in risky assets have tested

their resilience.

These developments, together with the

increasing potential for more adverse scenarios

to materialise, triggered an unprecedented policy

intervention.

Institutions at risk include those with hardcurrency,

short-term funding on inter-bank

liabilities, or those with high concentrations in

sectors particularly affected by Covid-19 shock

such as tourism, hospitality, and transport.

Such problems make a credit crunch

likely, with sharp reductions in new lending and

hoarding of liquidity and capital, thus, a new and

unfamiliar environment for banks as they are

required to evaluate and monitor credit risk with

limited visibility and access to reliable data.

Looking at the shape of recovery is taking,

banks can do much to help mitigate the impact of

Covid-19 on the real economy.

Bank bridge financing and restructuring of

loans for sound borrowers who have become

cash-strapped can help businesses alleviate the

impact of the crisis, adapt to the new operating

environment, and eventually, contribute to the

recovery stage.

Lines of credit and partial credit guarantees

can provide additional financing to keep viable

businesses in operation and restore credit flows

to boost investment.

As the economy enters the recovery stage,

exporters and firms integrated in supply chains

need to benefit from tailored export financing,

factoring and credit insurance mechanisms.

New dynamics in credit risk

management

The coronavirus pandemic has called for new

specific measures on managing and mitigating

credit risk.

Several banks have been adjusting to the

new dynamics and exploring new approaches to

myriad challenges.

Some sectors such as travel, tourism and

hospitality were severely affected, while other

industries did better and struggled to meet

demand.

Thus, changes in creditworthiness differ

by sector and subsector to a larger extent than

before the crisis.

Telecommunications and pharmaceuticals for

instance saw little to no impact while industries

such as food distributors did better.

Still, pockets of risk are growing

Though officials reported aggregate banking

soundness, indicators do not raise major red flags,

they mask vulnerabilities specific to a dollarised

system hence the need for dual lending.

Likewise, a significant variation in prudential

indicators across individual banks is key. This

might cause further deterioration of assets quality

thus having an increase in non-performing loans

trending towards the watchlist category.

As the local currency appreciates, there is a

danger that borrowers will struggle to repay loans

leading to banks sitting on huge non-performing

loans (NPLs).

PLs hinder economic growth and

efficiency

The RBZ needs to decide how it assesses

credit risk.

Banks on the other hand should adopt

a value driven credit culture given that most

firms in Zimbabwe have been operating with

inadequate working capital whilst in need of

capital expenditure.

Firms also need to worry about

recapitalisation first before going ahead to

borrow working capital.

When there is a major economic change,

there is a need to properly strategise to ensure

that the general environment is conscientised

and is prepared for the changes.

Banks need to properly analyse clients’

requirements and trading activities while avoiding

excessive reliance on historical information which

might suffer from creative accounting.

This will result in lending to borrowers with

no capacity to service and repay back their loans.

Some of the methods banks can use in

managing risks include:

• The need to analyse demand shocks

and recovery trajectories and translate

to probability-to-default multipliers.

• Going deeper into borrower financials

and business models to estimate

resilience to Covid-19 crisis effects.

• Mining transaction data to derive

cashflow, affordability, mining

alternative high frequency data to

derive revenue trends and auto-feed

results into decision engines.

• Equally important, there is a need for

banks in Zimbabwe to shift to a

customer assistance interaction mode

l and make it a priority in a digital

transformation.

Since assets quality challenges can potentially

heighten liquidity risk given the challenging

operating environment where credit is largely

financed by volatile short-term deposits, banks

need to enhance credit risk management systems

with special emphasis on credit assessment,

origination, administration, monitoring,

evaluation and control standards.

Given such a scenario, banks must develop

sector-specific solutions, augment capacity and

evaluate cost-benefit of organic versus inorganic

options.

To improve turn-around time, simplified

templates and pre-approved limits will help in

shifting the pipeline.

Conclusion

As the Zimbabwean economy recovers, banks

should seize this moment to move away from

the pre-crisis growth models and accelerate

transition.

The financial sector measures to support

the economy should be broad, transparent, and

rapid while balancing stability concerns.

In addition to that, emergency measures

should be time-bound and have clear exitstrategies.

Pandemic response policies have prevented

an adverse equilibrium of acute financial market

volatility thus, impairing access to funding for firms

in need of recapitalisation. This has resulted in a

substantial contraction in lending and a steeper

collapse in real economic activity.

Delivering more with less, banks should

closely monitor liquidity and credit trends given

an opportunity for dual lending to deserving

firms.

This means reprioritising lending to

productive sectors while enhancing efficiency.

Mapuranga writes in his own personal capacity. The views

expressed in this article are those of the author and do not

necessarily represent any organisation. Feedback: Email -

smapuranga15@gmail.com; or Twitter: @Sa_miiM





13


uS Dollar and

the restoration

of banking

confidence.

BY enOCk rukarWa

BANKS recently started advising clients they are

now opening new nostro accounts to cater for

cash deposits and incoming funds from abroad.

The major reason behind this was to separate

local USDs circulating on the RTGs platform and

real foreign currency in the form of cash deposits

and incoming wire transfers from abroad.

The separation implies that nostro funds

circulating on the RTGs platform cannot be

withdrawn as cash in the banking hall.

Local nostro initially started as real US dollars

through a monetary policy instrument that has

now been diluted.

This represents one of the ailments eroding

banking confi dence with the sector now

experiencing a long-lived confi dence crisis.

The crisis started on the onset of the recession,

with the period 2004 to 2008 being the most

devastating time characterised by very high levels

of infl ation and unemployment.

From the 1980s to the late 1990s,

Zimbabwe’s fi nancial sector appeared quite sound

in terms of capitalisation levels, even though it

was not inclusive in the sense that it largely served

prime clients, ignoring small and untried clients.

However, weaknesses in the banking sector

involving newly established local banks were

encountered during the last quarter of 2003

resulting in four institutions being liquidated and

nine institutions placed under curatorship.

Cash shortages, withdrawal limits, consistent

long queues and bank failures were the new order

of the system that weakened confi dence.

Closure and the placement of major banks

under curatorship further diluted public confi dence

in the sector.

In all of these cases, public depositors were

the ultimate victims, in some cases depositors

had their account balances written off without

receiving a fraction of their deposits.

Speculative behaviour dominated the sector’s

activity to the extent of having bank deposit fi gures

that were unacceptable.

This led to the freezing of many deposit

accounts which in turn intensifi ed the confi dence

crisis.

The local currency was devalued to the extent

that depositors could not be convinced on the use

of banking services.

Financial crimes such as money laundering

went out of range during the same period.

In February 2009, the government introduced

a multicurrency system which immediately

arrested infl ation and brought recovery in the

economy.

The introduction of the policy brought a

signifi cant measure of stability to the sector and

set the course for restoring public confi dence in

the sector.

The banking sector deposits increased by

32% to US$ 4,02 billion between December 31,

2011 and June 30, 2012.

However, the policy gave birth to a number

of additional challenges; narrow liquidity topping

the list.

Thin liquidity was being driven by the

country’s inability to attract lines of credit, the

absence of a lender of last resort and an interbank

market.

In an effort to address the shortcomings of this

policy, the Reserve Bank of Zimbabwe increased

its requirements for the capital base of banking

institutions.

The building of adequate capital buffers by

banks was meant to restore confi dence, mop up

substantial liquidity circulating outside the banking

system and support meaningful re-orientation of

the economy onto a sustained growth path.

Deepening crisis (2008-2009)

The collapse of the formal productive sectors of

the economy led to a growing informal sector that

in turn reduced demand for formal bank lending.

In response, banks tried to hedge themselves by

shifting asset composition towards short-term

low-risk securities (treasury bills) and limiting loans

to the private sector.

The objective was to maintain liquidity, as

it was not possible to achieve real profi tability

because of highly negative real rates of interest on

government securities amidst hyperinfl ation.

However, this protection was threatened by

the actions of the RBZ whereby it lengthened

to page 16




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15


Banks also

need to show

commitment

in service

delivery in order

to enhance

customer

confidence

from page 14

maturities of Treasury and RBZ bills and thus

exacerbated the negative real interest rates being

earned.

Prior dollarisation

Initially, dollarisation had severe negative effects

on banking business. Due to the low confi dence

in the banking sector, the public kept their foreign

currency transactions outside the formal banking

system.

This led to a sharp decline of bank revenues

as the banks’ traditional sources of income such

as interest income, Treasury Bills and government

bonds, as well as sources of funding or liquidity

including inter-bank funding, RBZ liquidity support,

customers’ deposits and the use of Treasury Bills as

trading assets, were no longer available.

Confidence creation

There is a need for the banking authorities to

come up with policies and structures that can help

boost transparency of the banking system. If the

banking authorities are able to enhance banking

structures thereby making them more transparent,

confi dence can be restored by a substantial margin.

One of the major challenges that have always

existed is the principle agent problem. As long

customers are not convinced of banking system

commitment in serving their emotional needs,

trust will remain a pie in the sky.

The kind of relationship that exists between

banks and customers is vague in that one leaves

their deposits in the custody of another in

exchange for a document or certifi cate.

Trust is what holds the relationship. It is

therefore necessary for the banking sector to

enhance that relationship by showing enhanced

commitment.

There is also a need for regulators to come

up with policies that discourage unscrupulous

banking practices and develop deterrent punitive

measures.

Economic headwinds are major fundamentals

that diminish banking confi dence and pragmatic

commitment on these structures is crucial.

Individual expectations about the general

economic conditions and other economic

indicators are likely to improve if there is realisation

that authorities are seriously taking measures to

improve economic conditions.

Good expectations lead to good confidence

Banks have to make deliberate efforts to make

their structures transparent and gain committed

customers. For example, banks may explain

how charges are accumulated thereby creating

knowledge of reasons thereof. If customers

understand banking processes and challenges,

confi dence can be gained easily.

Banks also need to show commitment in

service delivery in order to enhance customer

confi dence.

Poor service delivery may mean the bank is

struggling to speak to the less informed customers

who usually constitute the majority.

Management should ensure that service

delivery is in line with the overall strategy of the

bank that seeks to improve the image of the

organisation.

Rukarwa is a Research and Investments Analyst at

FBC Securities. Email: Enock.rukarwa@fbc.co.zw/

website www.fbc.co.zw Mobile: 26377719053




Building an ecosystem?

Connect the dots.

In nature, an ecosystem is a complex network of interacting

components. In business, an ecosystem is a complex network of

interacting components. In short, everyone and everything in your

organization is connected to everyone and everything, and every

part determines the whole.

To be more systematic in building your ecosystem, your unique

Audit, Advisory and Taxation Services solutions, get in touch.

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17


Realign

strategy

with the

current

new

normal

—FCB

The event is coming in

the wake of Covid-19

as well as economic

challenges that continue

to bedevil the financial

services sector

Banks and Banking Survey ( BBS) spoke to this

years’ awards sponsor, FCB Chief Finance

Officer, Taitos Mukuku (TM) to understand key

trends in the banking sector.

Below are the excerpts of the interview:

BBS: The banking sector has been going

through changes in terms of the normal day- today

running of the business. What can you say

have been the key life-changing experiences that

the sector had to go through over the years?

TM: Over the years the financial sector has

indeed undergone various changes that have in

a way shaped it to be the solid backbone to the

markets it serves that it is today. Macroeconomic

factors such as the hyperinflationary environment,

disruption by non-traditional players and currency

and policy changes have influenced a culture

of agility industrywide due to their prerequisite

timelines that require prompt execution.

We have also moved from customary banking

that was face-to-face orientated to digitisation as

our customer needs have evolved to align with

global trends.

To remain relevant the banking experience

has been redefined by leveraging through

available technologies. A culture of moral

good within our communities of operation has

become mandatory through Corporate Social

Responsibility as each organisation follows the

triple base view approach which has promoted

overall sustainable development in the financial

sector.

BBS: Covid-19 was one of the unexpected

occurrences in 2020. What’s your comment on

the general performance of the sector during the

pandemic?

TM: Covid-19 pandemic was a circumstance

that no one could have predicted. In many ways

it redirected and fast-tracked the financial sector

to the new-normal operational expectations that

the market has come to expect as a minimum

standard. During the pandemic, banks took the

lead in facilitating and supporting all essential

services that were operational during the

lockdown.

Minimal disruptions to service were

experienced as banks stood ready to support

clients after they invoked their Business

Resumption Plans as part of the frontliners and

essential services framework.

At the beginning of the lockdown overall

revenue figures went down due to customers

being at home and enterprises operating within

the confines of the set guidelines.

As the lockdown moved from stage to

stage, expanding the parameters of operations

by opening more industries and sectors, the

situation took a turn.

Banks reopened to ensure clients had access

to their funds and began re-engagement of

correspondent banks and other key partners to

reignite trade.

Due to changes in consumer behaviour,

there was an upsurge of digital channels

penetration as the demand for cash became less

with customers opting for digital products. This

culminated in positive half-year results for most

players in the financial sector signaling a sense of

stability in the market.

BBS: In relation to First Capital Bank what can

you say is your future post-Covid-19?

TM: The global pandemic has called for an

evolution in the way we do business and has

created a legacy across the industry. Having

actually experienced the pandemic we have

learnt how to adequately prepare for a crisis

of this nature through our Business Continuity

Management.

Going forward our bank would like to

increase our stakeholder digital adoption through

increased remote access facilities in line with

global trends. Banking should be at the palm of

everyone’s hand and we want to be a leader in

that journey as we create shareholder value.

With the increase in online, digital and

e-commerce platforms, cybersecurity on all

platforms is paramount to safeguard customers’

money.




Through the above, we need to also look

at unlocking new product capabilities to address

market gaps.

We have already begun to implement some

of the above and have recently launched strategic

partnerships with Ria Money Transfer Services

and Zimnat to avail a suite of relevant, costeffective

services that are key to our customers.

BBS: Banks have also embraced digitisation,

what can you say about First Capital Bank on this

front?

TM: As a business, we have been working

steadily towards this goal as our aim is to be

a cash-light bank that exists at the palm of the

hand, meaning we provide convenience through

relevant digital innovation.

Our first step was our milestone major

system overhaul with over 60 systems being reengineered.

At the beginning of the year we went through

a system stabilisation phase as we began to

unpack the digital capabilities of our system.

At the back of this milestone we are now

unpacking the optimal capability of the system.

We are continuously enhancing our offering and

developing new products that will soon hit the

market. Stay tuned.

BBS: What has been your most exciting

innovation in 2020 that you are proud of?

TM: We have been working tirelessly on piloting

an innovative cutting-edge bulk payment system

for our corporate client segment.

It has many unique attributes such as a readyan-audit

trail, distinctive security features and so

on. We have currently rolled it out on a trial basis

and are very excited about the feedback we

have received so far. We are working flat out to

provide a truly tailored product and it will be in

the market in no time. Please watch out for it and

enjoy the experience.

BBS: What is your comment on capital markets

in Zimbabwe in relation to banking?

TM: The capital markets in Zimbabwe are on

a steady positive growth trajectory with new

initiatives such as the Victoria Fall Stock Exchange,

to name just one, coming forward to address

market gaps that may have stunted growth

within this space. As foreign currency becomes

available, we see a lot of traction with bonds and

other long-term investments. This will present

numerous opportunities for banks to participate

in this value chain and create shareholder value.

BBS: Banks have been experiencing high costs

and lack of access to new credit lines as the

economic landscape has been unfavourable. In

such times what advice can you give to banks to

stay afloat?

TM: We need to go back to basics and realign

the strategy with the current new normal whilst

constantly watching our cost lines. There is a

marked appetite for investment in the country as

evidenced by a lot of investor inquiries in diverse

forums. As organisations we need to search

for new income streams by collaborating and

coming up with competitive viable solutions for

clients to attract offshore investments and lines

of credit. Service excellence remains at the core;

where it exists business will follow.

BBS: Banks have also been working on

strengthening their balance sheets and value

preservation. How have you been doing

concerning that?

TM: Our current macroeconomic operational

conditions make this exercise increasingly

important to remain profitable. At First Capital,

we have managed to maintain a solid and stable

balance sheet through various strategies such

as maintaining a prudent risk lending model to

minimise impairment losses, maintaining asset

value, offering competitive money products to

retain a healthy deposit base among others. It

is an ongoing exercise that we will continually

refine to suit the needs of the market.

FCB Chief Finance Officer, Taitos Mukuku

“Covid-19 was one of the unexpected

occurrences in 2020.”


19






21


State of

competition

in the banking

sector

BY Tatenda Zengeni

The banking sector plays an intermediation role

of collecting savings, lending to businesses and

people, contributing gross capital formation

through availing capital investment in key areas

such as the agriculture, manufacturing and trade

sectors that underpin national development.

Given this vital role in stimulating economic

growth and development, it is therefore

critical that the banking sector be efficient and

competitive.

Competition in the banking sector leads to

numerous benefits for both consumers and the

economy.

This includes compelling banks to closely

manage costs, enhance efficiencies and financial

services quality and improve corporate sector

access to finance, amongst others.

This article therefore assesses the level

of competition and suggests ways in which

competitiveness can be enhanced within the

local banking sector.

Market concentration

This is a measure used to determine the

structure of a defined relevant market based on

market shares of the players.

It can be used to assess the level of

competition in a sector.

According to the Reserve Bank of Zimbabwe

(RBZ) Banking Sector Report, June 2020,

Zimbabwe has 19 banking institutions comprising

13 commercial banks, 5 building societies and

one savings bank.

Calculating the Herfindahl-Hirschman

Index[1] (HHI) shows the results in the Table

below.

Source: 2019 Bank Supervision Report

The Zimbabwean banking sector is

moderately concentrated with an HHI of 2 309.

Similar results are obtained when using bank

assets to measure concentration.

The top banks control about 55% of the

deposits market share. The lack of competition in

the banking sector comes with negative benefits

to the economy, partly explaining the high service

charges currently levied by the local banking

sector.

Given this status quo, the article will briefly

explore mechanisms of promoting competition

within the sector.

First, is the need to relax entry conditions

to encourage rivalry amongst banks whilst

maintaining stability, through establishing

an appropriate regulatory and supervisory

environment that addresses the threat of

instability in the banking sector.

This includes what the RBZ is already

implementing-setting prudential rules on

minimum capital requirements and liquidity levels

for banks.

While the RBZ extended the minimum capital

requirements deadline to December 2021 due

to Covid-19, capital requirements remain high

for new market entrants.

For instance, capital requirements for a large

commercial bank of US$30 million at the current

exchange rate of US$1:ZWL$ 81,3486, will be

equivalent to approximately 4% of broad money

(M3) reported in the 2020 Mid-Term Monetary

Policy Statement.

The RBZ should also direct efforts towards

reducing switching customers’ costs such that

account holders can transact across banks at

limited costs.

The reason why an account holder stays

with one bank for a long period is due to the

value of the credit history that the bank holds,

which is useful for future loan applications.

Lessons can be drawn from the recently

introduced interoperability in mobile money

wallets (“MMW”) which made it easy for one to

switch from Ecocash to OneMoney or Telecash

and vice versa.

This encourages quality of service-based

competition amongst players to attract customers

to their wallets.

A similar system can be applied in the

banking sector.

Bank accounts can be standardised to allow

individuals and firms to have a unique bank

account number that they can transact with

across banks, with their credit history.

This reduces switching costs and encourages

vibrant competition amongst banks.

Digitalisation

Lastly, banks must embrace opportunities

presented by digitalisation, especially during and

post the Covid-19 period where face-to-face

interaction is discouraged.

Digital technology platforms enable new

entrants to overcome high fixed and maintenance

costs incurred in operating bank branches and

Automated Teller Machine networks.

Until recently, these constituted high barriers

to entry resulting in market concentration within

the sector.

Digital banking systems require less capital

than the usual investment in bank branches and

ATM networks.

The recent entry by Discovery Bank, Bank

Zero and Tymedigital in South Africa’s highly

concentrated banking sector points to that

digitalisation creates more opportunities and

reduces barriers to entry.

Account holders in South Africa have started

enjoying the benefits of lower bank charges,

better interest rates and more transparent

banking products as a result of the new entrants.

These few suggestions can help to improve

competition in the local banking sector which will

be beneficial to Zimbabwe.

Zengeni is a Senior Research Officer at the Competition

and Tariff Commission (Commission). The views expressed

are the authors’ own and do not necessarily reflect

the views of the Commission. He can be contacted on

tatendaecono@gmail.com

[1] One of the simple widely used measure of concentration

by competition authorities around the world is calculating the

HHI calculated by taking the sum of the squares of the market

shares of every firm in the industry. The market shares are

squared to place more weight on large firms. An HHI of less

than 1 500 represents a relatively unconcentrated market,

with no competition concerns. An HHI between 1 500 and 2

500 represents moderate concentrated markets and, therefore,

competition concerns, while an HHI of over 2 500 represents high

concentration and serious competition concerns.





23


Bank capitalisation

and the politics

of uncertainty in

Zimbabwe

BY Mutandani Makuyana

Despite continued vulnerabilities arising from

the macroeconomic environment, exacerbated

by the outbreak of Covid-19 pandemic,

Zimbabwe’s banking sector has remained

adequately capitalised, sound and resilient.

Adequate capitalisation has seen banks

buoyant to various stress shocks applied to

credit, interest rate and foreign exchange risks.

The latest report by Reserve Bank of

Zimbabwe (RBZ) reflects that as at June 30,

2020, all banking institutions were adequately

capitalised, as the banking sector average capital

adequacy ratio stood high at 61,72%, well above

the 12% benchmark level.

Further, all banking institutions were

reported to have adequate capital buffers to

absorb moderate shocks and militate against

inherent risk of insolvency.

The RBZ further reported that as of that

date, the banking sector aggregate core capital

was ZW$20,99 billion, representing an increase

of 180,99%, from ZW$7,47 billion as at

December 31, 2019.

The growth in banking sector aggregate

capital was largely attributed to growth in

retained earnings, buoyed by revaluation gains

from foreign exchange denominated assets.

This followed movements in the foreign

exchange rate due to the introduction of the

foreign exchange auction in June 2020.

As such, profitability and retained earnings

have proved to be a function for buttressing

capital.

Capital Adequacy Ratio (CAR) for the

Zimbabwe banking sector has trended upwards

since 2016, hovering well above the benchmark

ratio of 12%. Capital Adequacy Ratio measures

the amount of capital a bank retains compared

to its risk.

to page 26





25


from page 24

CAR (%)

70.00%

60.00%

50.00%

40.00%

30.00%

20.00%

23.45%

23.70%

Capital Adequacy Ratio (CAR)- %

26.89%

27.63%

26.32%

30.27%

32.64%

39.56%

61.72%

on profi tability.

The outbreak of Covid-19 and the associated economic challenges

further pose a threat for banks to satisfy the reviewed minimum capital

requirements by 2021.

As a mitigation measure, the Central Bank directed that banking

institutions should proactively reinforce their economic capital levels as part

of resilience capability management.

10.00%

0.00%

Jun-16

Dec-16

Jun-17

Dec-17

Jun-18

Dec-18

Jun-19

Dec-19

Jun-20

Data Source- RBZ MPS publications


Prescribed minimum capital threshold

ZWL$ Equivalent

Minimum Capital

requirement threshold@

Cognisant of the prevailing economic challenges 2021 Prescribed as well as negative impact

Minimum Capital

of Covid-19 pandemic outbreak, the RBZ extended the deadline for bank’s

Institution Category requirements

compliance with the requirement for meeting the minimum capital levels by

Capital Adequacy Ratio (CAR)- %

one year from December

Large Indigenous

2020

&

70.00%

to December 31, 2021.

foreign commercial

60.00%

Tier

In

I

addition, banking institutions are also required to continue to assess

50.00%

the adequacy of their economic capital levels against their own risk profi les.

40.00% Commercial, merchant,

In fact, particular

B/societies,

attention should be given to credit risk, operational

30.00%

risk Tier and 11 business risk, which have since been signifi cantly increased by the

20.00%

Covid-19 pandemic outbreak.

10.00% Deposit taking- Micro

Tier The III 0.00% dynamic nature of the fi nancial landscape, amid increasing

economic uncertainties have prompted monetary authorities to apply US

Credit Only Micro

dollar linked minimum capital requirements for banks and other fi nancial


entities, in an effort to ensure banks are adequately capitalised at all times.

CAR (%)

Tier I

Tier 11

23.45%

Jun-16

23.70%

current exchange rate of 1

USD: ZWL$81.3486

banks USD 30 million ZWL$ 2.4 bln

Development banks USD20 million ZWL$ 1.6 bln

finance Banks USD5 million ZWL$ 407 million

Dec-16

26.89%

Jun-17

27.63%

Dec-17

Finance Institutions USD25,000 ZWL$ 2 million

Institution Category

26.32%

Jun-18

2021 Prescribed

Minimum Capital

requirements

ZWL$ Equivalent

Minimum Capital

requirement threshold@

current exchange rate of 1

USD: ZWL$81.3486

Large Indigenous &

foreign commercial

banks USD 30 million ZWL$ 2.4 bln

Commercial, merchant,

B/societies,

Development banks USD20 million ZWL$ 1.6 bln

30.27%

Dec-18

32.64%

Jun-19

39.56%

Dec-19

61.72%

Jun-20

In fact, particular

attention should be

given to credit risk,

operational risk and

business risk, which

have since been

significantly increased

by the Covid-19

pandemic outbreak

Tier III

Deposit taking- Micro

finance Banks USD5 million ZWL$ 407 million

Credit Only Micro

Finance Institutions USD25,000 ZWL$ 2 million

Outlook

Are Banks poised to withstand the test of time any longer?

While key performance indicators refl ect a sound and adequately capitalised

banking sector which is key in mitigating inherent risk, does this translate to a

solid footing for the banking sector to remain resilient in the outlook?

The operating environment is envisaged to remain challenging and

highly uncertain, a situation that makes it diffi cult for banks to assess their

outlook inherent risk.

Adaptive public and investor confi dence in the fi nancial sector have hit

rock bottom, worsened by synergies of signals of uncertainty across other

key sectors of the economy.

More importantly, cost-to-income levels for the banking sector have

remained high, while the major component of income has shifted from

interest income to non-interest income.

There remains a high probability of adverse shocks to this profi t

function, for instance, the somewhat stabilising exchange rate will reduce

exchange valuation gains, while economic slowdown will negatively impact

Makuyana is an economic and investment analyst and also head of research (Invictus

Securities Zimbabwe) Email:mutsmarks@gmail.com,m.makuyana@invictus seurities.

com




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27


Adjudicators’ Page

..generally,

the state of

Zimbabwean

banks has

significantly

improved over

the last 10

years...

Respect Gwenzi –Lead Adjudicator.

THE 2020 edition of the Banks and Banking Sector

Survey comes against the backdrop of the

deadly Covid-19 pandemic.

As has been the case in almost all countries

across the globe, lockdown measures were instituted

in Zimbabwe and the consequences have

been an unexpected decline in bank fee and

commission-based incomes.

Branch traffic levels were reduced while transaction

volumes also declined as consumers spent

sparingly.

However, the Covid-19 induced transactions

volume decline did not deter banks from posting

strong overall non-funded income levels.

Whereas fee and commission incomes typically

drive non-funded income, in the period under

review, foreign currency dealings and fair value

adjustments surpassed the former, in contribution

terms.

A tilt towards the latter was largely driven by

macroeconomic volatility characterised by hyperinflation

and exchange rate depreciation.

Banks were seen taking foreign currency dealing

positions against the depreciating local currency.

This was also pursued as a value preservation

measure.

Generally, 78% of the total income earned by

the 17 banks reviewed was non-funded with fairvalue

adjustments on assets and foreign currency

dealings dominating the income line.

This however did not stop banks from improving

their digital capabilities.

If anything, the Covid-19 pandemic necessitated

the need to speed up ICT infrastructure

investments and this entailed enhancing digital

touch points and substituting some roles typically

conducted at branch level, such as account

opening.

In our adjudication process, we sought to review

and award outperforming banks based on

their financial performance over the six months

period to June 2020.

The key categories included the overall winner

and runner up, which was determined by income

performance, balance sheet performance

and key ratio performance.

Winners in this category showed a quicker

growth in overall income and strengthening liquidity

and overall balance sheet position.

These banks hardened their balance sheets to

counter inflation, at a rate that was above sector

averages.

The banks also kept alive traditional lines such

as funded income, despite the risks of inflation,

low interest rates and heightened repayment

risk.

In the innovation category banks were rated

based on the products released and processes

adjustment through digitisation.

In this category we also rated banks using the

mobile banking applications review model whose

key parameters included Google Playstore rating,

application update cycle (when was the application

last updated), number of downloads,

current application version, number of reviews,

application bundle size and minimum supported

version on Android.

Our research and rewarding also stretched to

sustainability and we applied the ESG (Environmental,

Social and Governance) matrix.

Generally, the state of Zimbabwean banks has

significantly improved over the last 10 years, with

improving governance helping stabilise the sector.

Improved discipline in lending and a resilience

built on the bedrock of a dollarised economy has

helped banks withstand the pressure.

As the adjudicators, we commend all banks for

defying the odds to report improving inflationadjusted

performances and building digital capabilities

which improve competitiveness.

Equity Axis is a financial media company specialising in

research broadcasting and publishing of economic and

business updates.




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29


Overall 2020 BBS

Overall 2020 BBS

Runner up – Stanbic Bank Limited

STANBIC has always been a perennial

contender for the top spot. This bank is arguably

one of the best in Zimbabwe. It has leveraged

its foreign roots to spur growth in both funded

and non-funded income lines while exploiting

opportunities in its niche markets. A relatively

higher exposure of income to foreign currency

in certain lines helped the bank realise a sharper

growth in non-funded income for the year which

has been buttressed by foreign currency dealings

and fair value adjustments on properties.

Overall 2020 BBS

Winner – FBC Bank Limited

The bank has seen opportunities in turmoil and

moved quickly to exploit these for value. While

economic turbulence in Zimbabwe has taken

most banks backwards as shown by the loss in

income, FBC has taken bets, holding foreign

currency positions against a weakening currency,

thereby driving foreign currency dealing income

upwards.

The strategy has been buttressed by the need

to preserve value in an infl ationary environment.

Investing in non-liquid assets and cautiously

growing the loan book has helped shore up

its interest income. A massive digitisation

programme being undertaken is expected to

unlock signifi cant value.


INNOVATIONS AND CHANNELS

AWARDS

The award runner up - BancABC ZW

The bank is undergoing a digital transformation,

but one which is like none other.

It has invested heavily in both human capital

and infrastructure and early signs of positive

returns are visible.

The digitisation process is part of the bank’s

comprehensive review of its strategy. To date

the bank has completed core banking system

optimisation introducing new mobile and internet

banking platforms.

It has also collaborated with local fi ntechs on

platform-based services.

Overall Winner - CBZ Bank Limited

The bank is an early adopter of digitisation

and kept the momentum through consistent

innovation over the years. It has paid attention

to its core banking system, which runs on latest

versions allowing it to introduce updated and new

products on its digital platforms. Its application

remains by far one of the best on the market.

Markets visibility and sustainability

position award

Winner - BancABC Zimbabwe

The bank is one of the two which recently

undertook rebranding initiatives. The rebranding

has culminated in rejuvenation and reposition of

the bank as a premier offering. It’s “A” team logo

is gaining recognition and its focus on customer

experience is exceptional.

Sustainability award

Winner - Nedbank Zimbabwe Limited

The bank was an early adopter of paperless

banking on the local landscape emphasising

sustainability on the environmental aspects.

Its restructuring, which culminated in brick

and mortar scale-down also addressed social

sustainability together with the work it is doing

in communities. The company’s corporate

governance is in line with international

benchmarks.

Best Performing Building Society

Winner - CABS

The bank has consistently been profi table

contributing to national development through

housing construction. It has steadily progressed

solidifying its mortgage book leveraging on

its parent and is now one of the largest and

strongest banks in Zimbabwe.


to page 32


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31


from page 30

is...

Defying odds-leveraging

on new techniques

2020 BBS

OVERALL WINNER

THE tilting economic landscape in Zimbabwe brought about seismic shifts in

ways banks generate income.

Generally, the economic transition has been characterised by economic

volatility resulting in loss of income at large and to some extent new lines of

revenue.

These new lines of income have been buttressed by a growing income

generated through the usage of digital platforms.

For FBC, the bank has defi ed odds improving its income base by leveraging

various techniques.

In 2019, a signifi cant portion of the bank’s income emanated from the

non-funded line and this typically includes fee and commission, foreign

currency dealings and fair-value adjustments because of infl ation.

The bank’s income derived from foreign currency dealing was the highest

for the sector and this performance has been sustained into 2020.

The bank’s income generated from foreign currency dealings was

augmented by income from fees and commissions as well as fair-value

adjustment to drive the net outturn to one of the sector’s highest levels.

FBC has undertaken a massive digitisation programme and recently

introduced a number of new products and improved processes on its digital

touch points, which has helped drive up fees and commissions income.

While most banks have slowed down on lending, FBC’s loan book has

cautiously and steadily maintained an upsurge in turn helping drive interest

income.

The interest income line has been aided by other sub-lines in a period

over which government has slowed down on TBs (Treasury Bills) issuance.

The company’s overall growth in income over the past two years has

powered it to become one of the largest banks by income and asset size at

number four and three respectively.





33


RUNNER UPS

Overall 2020 BBS

RUNNER UP

Innovations

& Channels

RUNNER UP

a century of greatness

Since its arrival on the shores of Zimbabwe’s fi nancial sector late in the past

century, Stanbic has transformed into a force which very few banks can

compete with.

The bank’s income has been augmented by foreign currency dealings as

well as other non-funded lines.

Its high net worth and largely corporate clients involved in exporting,

have given the bank a strong muscle and cushion in periods of volatility.

The bank has leveraged its parental ties to source funding at discretionary

rates while facilitating cross-border trading using the same leverage.

The bank has a strong capital and liquidity base and set to maintain its

market leadership in some lines.

The bank registered the highest income level of all banks in the latest half

year period after doubling its non-funded income line.

Stanbic is working on reconfi guring inline industry dynamics and has been

stepping up its digital transformation to remain competitive.

Conquering the digital space

BancABC recently undertook to restructure and the process begun

by the recruitment of CE, Lance Mambondiani, who was formerly at

Steward Bank.

At Steward Bank, Mambondiani led the transformation of the bank

into a digital bank and since 2018 the bank has taken over the nonfunded

space as the biggest bank by income size.

The bank’s world-class digital infrastructure allowed it to increase

the number of new customers at a record time while also building an

ecosystem with sister company, Ecocash , which is the core player in

the mobile money space.

Mambondiani has taken the initiative to his new home, leading

a transformation which has resulted in a new logo, digital customer

centric focus as well as focus on fi nancing key sectors of the economy.

In its latest fi nancial statement the bank said its restructuring process

has resulted in the implementation of an aggressive digitisation agenda

to increase its operational effi ciency and serve its customers better.

It stressed that its stated goal is to position the bank to compete

with the best in the world using home grown innovations and solutions

relevant to the market.

It is encouraging to note that the business is now positioned for

success and on a fi rm path to deliver.

The Zimbabwean unit has been rejuvenated at a time the parent is

offl oading some of the units across Africa.

These initiatives at BancABC will begin to show through improved

matrices in 2021 but already the numbers of new customers and

increased usage of its platforms and new digital products is yielding gains.




Seeing

opportunities

Africa’s a continent of contrasts, unique challenges and amazing opportunities.

Succeeding here depends on having a deep understanding of local issues, a global

perspective, and the ability to use these to build tailored solutions. We’ve been doing

business in Zimbabwe for almost 80 years, and our diverse teams of multi-skilled

and experienced professionals are working with our clients to add value to their

businesses.

It’s what we do.

At PwC Zimbabwe we see opportunities

where others see challenges.

PricewaterhouseCoopers, Building No. 4,

Arundel Office Park, Norfolk Road, Mount Pleasant

P O Box 453, Harare, Zimbabwe

T: +263 (242) 338362-8 F | F: +263 (242) 338395

www.pwc.com

©2020 PwC. All rights reserved. (20-26007)


35

Impact of

Covid-19 on

the Banking

Sector

BY Euphra Mazheve

THE outbreak of (Covid-19 has had a great

impact across all sectors of the Zimbabwean

economy including banking.

The exceptional challenges caused by

Covid-19 demanded that the sector remained

financially stable to be able to support the

economy.

After the outbreak of Covid-19 in China

at the end of last year, there seemed to be no

better way to contain the spread of the pandemic

than to restrict movement across borders by

most countries and consequently many airlines

were grounded.

The borders were initially closed in Asian

countries (China) and Western countries in

January and early March respectively.

Our banking sector, and naturally the

economy as a whole, was exposed to liquidity

challenges through the closure of borders.

Banking sector liquidity pressure increased

as Zimbabwean banks continued to facilitate

international money transfers despite the closure

of Western and Asian borders.

While use of foreign currency was banned

under SI 142 of 2019, there has remained

more appetite for United States dollars (USD) in

Zimbabwe as critical products like fuel are sold in

foreign currency on the market.

Banks continued to facilitate money transfer

disbursements to clients in foreign currency

(through MoneyGram, Mukuru, and World

Remit) but no physical cash was imported by

banks since airline travels were banned, thereby

increasing the liquidity pressures.

In an effort to contain the spread of Covid-19,

the government of Zimbabwe also imposed a

national lockdown at the end of March.

Consequently, the banking halls were

temporarily closed for 21 days to protect both

clients and employees.

Robust digital platforms were put in place to

allow the public to access banking services while

more capital was invested in order to prevent

and manage the pandemic. Although withdrawal

fees forgone by closure of banking halls were

substituted by Zipit charges, the financial

institutions lost much of their business during

the period to retail outlets which had in-house

diaspora remittances.

For example, there were large queues at

Kuwadzana Mart for Mukuru cashouts while

Western Union and World Remit were operating

from OK outlets.

The role of banks in the economy is financial

intermediation whereby they accept deposits

from those with excess money and offer loans to

those with a deficit.

They then derive profit from the difference

in interest rates, that is, between interest rates

paid and charged.

The Covid-19 lockdown thus negatively

affected the traditional banking business of

financial intermediation as movements were

restricted.

According to the mid-term monetary policy

statement of 2020, the credit only microfinance

institutions were the hardest hit by the lockdown

between March and June as low interest income

was earned.

MFIs’ clients are usually small-to-mediumscale

enterprises and individuals (vendors and

self-employed) but these remained closed for

business during the period, hence low interest

income was earned as this class of clients


was economically incapacitated to meet their

obligations.

The demand for loans even at level 2 of

lockdown was reduced due to social distancing

protocols which restricted movements of

people.

The banks also play a critical role of facilitating

national payments in the economy and receive

non-interest income from various digital payment

platforms.

The Covid-19 essential service protocols led

to the closure of many small-to-medium-scale

businesses and non-food staff outlets.

This resulted in low fees and commissions

from PoS machines and cards as their use was

restricted.

The volumes for both PoS machines and

cards fell by over 50% between March and April

and also revenue declined as indicated in the

mid-term monetary policy statement statistics.

The diaspora remittances also declined

drastically after Covid-19 lockdown in March

and volumes fell by almost 50% between March

and April as reported by the mid-term monetary

policy statement.

Countries hosting significant numbers of

Zimbabwe`s diaspora community such as

South Africa were affected due to slowdown in

economic activity and lockdown resulting in job

and income losses.

This had negative implications on banks as

fees and commissions from diaspora remittances

constituted a greater percentage of financial

institutions revenue, and are naturally a cheap

source of funding bank nostro accounts.

Despite the efforts of banks to process

foreign payments on behalf of clients, many

challenges were faced as many corresponding

banks were on total shutdown and employees

were working from home.

It usually takes two working days for a foreign

payment (Telegraphic Transfer) to reach the

intended party, but the process was prolonged

by the working-from-home protocol. On the

other hand funding the bank nostro accounts for

processing Telegraphic Transfers became a bit

difficult as volumes of export receipts received

on nostro accounts fell.

The value of foreign payments declined by

5,9% from January to June according to the

mid-term monetary policy statement and more

commissions on foreign payments were forgone.

Euphra Mazheve is an International Banking Officer

at Metbank Limited. She writes in her own capacity

and her views do not represent Metbank. Email:

euphramazheve@gmail.com Mobile: 0778 665 709.





37




Everyday News for Everyday People


ZIMBABWE

INDEPENDENT


39


Notes



ZIMBABWE INDEPENDENT BANKS AND BANK SURVEY 2020 MAGAZINE

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