ZIMBABWE INDEPENDENT BANKS AND BANK SURVEY 2020 MAGAZINE

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
Reimagining Banking Beyond Survival.
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.
36 BANKS& BANKING SURVEY 2020
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