HARARE – Zimbabwe’s financial sector growth is anticipated to slow down to 1,7 percent after bankers smiled all the way to the bank and recorded a 42 percent profit surge last year, data from the World Bank shows.
In its recently released economic update, the Bretton Woods Institution pointed out that the country’s financial services sector — which has been growing exponentially in the past two years — would register a growth slow-down this year on the back of regulatory interventions anticipated to eat into incomes.
“While finance has been among Zimbabwe’s best-performing sectors over the past five years, the recent liquidity crisis cut the overall growth rate of services to about 1,7 percent,” the World bank said.
Some of the regulatory interventions include a central bank directive imposed earlier this year which saw central bank governor John Mangudya directing all banking institutions to set lending interest rates at 12 percent or below, also stating that the institutions were to keep bank charges below three percent.
Prior to the announcement, lending interest rates were determined by a framework allowing banks to charge between six and 18 percent, depending on the client’s risk profile.
Coupled with this, the Reserve Bank of Zimbabwe reduced withdrawal charges in light of the country’s biting cash shortages and numerous withdrawals the shortages attracted.
Prior to Zimbabwe’s cash shortage, the banks were charging $2,50 for ATM withdrawals and about three percent (of the withdrawn amount) for cash withdrawals from inside banking halls.
The new ATM cash withdrawal charges include $0,50 for $50 and $5 for $500, while over-the-counter withdrawals from banking halls are charged at $0,25c for $20, $0,63 for $50 and $2,50 for $200.
The World Bank said these measures were to eat into the sector’s profits and growth prospects as local banks strive for survival in an increasingly fragile economy that has also seen numerous company closures and low industrial action.
The local banking sector remained profitable during the year to December 2016, with an aggregate net profit of $181,06 million, an increase of 42,36 percent from $127,47 million reported for the corresponding period in 2015.
This increase translated to improved average return on assets and return on equity from 2,07 percent and 11,03 percent, to 2,26 percent and 12,64 percent, respectively.
All local banking institutions recorded profits in 2016, with the central bank attributing the increase in profitability to lower loan loss provisions in line with improving asset quality, lower interest expenses, as well as continued realignment of cost structures at most institutions.
Meanwhile, the lender noted that despite a turbulent economic environment, growth in the construction sector slipped only slightly to about 3,5 percent.
“However, public administrative services contracted by about three percent. The growth of the services sector will remain constrained in 2017 as liquidity shortages are projected to continue,” the World Bank said.