New measures to wipe out 50 percent of banks income

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Local financial institutions, BancABC and FBC, have lamented that new bank measures put in place by Government as part of a host of regulations to stabilise the economy, are likely to wipe out upto 50 percent of banking incomes.

Responding to the new regulations, the banks said lending is the core business of a bank and restricting that function can prove catastrophic to the industry.

“Bank lending is the core function of banks financial intermediation process. Banning lending activities will threaten survival of banks as this will wipe out 20-50 percent of their incomes,” BankABC said in a statement.

The commercial bank claimed that this might in turn lead the institutions to try and survive via other means which might be risky or illegal. They could also push up costs for their customers to cover the void left by squeezed interest income.

“Consequently, this could push banks to embark on risk and/or non-permissible activities to compensate for the loss of incomes. This could also push bank charges upwards as banks devise survival strategies,” said BancABC.

Besides the income issue, the bank alluded to the fact that lending was critical for the economy as it resulted in companies being able to function properly without working capital headaches.

“On the other side, the companies cannot survive without working capital facilities. This will lead to scaling down of operations, shortages of goods, further price increases, viability challenges and possible company closures and job losses,” it added.

Research firm, Morgan and Co, on lending said, “Suspending lending by banks and microfinance institutions will result in unintended consequences, that is, worsening the economic turmoil. This measure will negatively impact on productivity and capacity utilisation. In addition, formal employment levels will come down which will in turn affect GDP growth in 2022.”

FBC Securities in its analysis document said, the restrictions on bank lending are likely to affect banks’ ability to pick wholesale deposits and offer competitive returns, and that viability of traditional fixed income investments will also be reduced going forward.

“Whilst property investments offer an alternative store of value vehicle, it has remained generally illiquid due to its USD denominated nature locally. Barring proposed measures, subject to possible refinements, the stock market continues to present an attractive investment opportunity under the prevailing circumstances,” the research firm said.

Morgan & Co. said; “The new measures will likely trigger low levels of investor confidence given policy uncertainties and inconsistencies. The economic and political environment in Zimbabwe have been a major impediment in terms of Foreign Direct Investment (FDI) flows into the country.

“In addition, the liquidity issues in Zimbabwe have also limited inflows. This is because investors cannot freely move money in and out of Zimbabwe. While the repatriation of dividends and proceeds from the sale of assets (including shares) by foreign entities have been on the Reserve Bank of Zimbabwe (RBZ) priority list, foreign participants have not been receiving their dues.”

FBC Securities said the lack of alternative viable investment instruments will lead to money going back to the stock exchange in the short term.

The firm said; “We forecast the stock market to continue responding to underlying macroeconomic developments especially inflationary pressures and exchange rate losses.” – Herald