‘Banking sector going through tough times’

The banking sector is going through a hard time trying to balance high interest rates, inflation and convergence of the exchange rates that are threatening sustainability of the banking environment in the country, an industry official has said.

The Reserve Bank of Zimbabwe (RBZ) has maintained interest rates at 200 percent as part of measures to avoid speculative borrowing as well as exchange rate volatility and inflation.

This together with other measures, the economy has in recent weeks witnessed slow down on month-on-month inflation, near convergence of exchange rates and reduced borrowing and lending.

First Capital Bank managing director, Ciaran McSharry, told Business Weekly on Wednesday that it will be critical to bring banking interest rates down so that there will be no other unintended consequences of forced dollarisation.

“From a long-term perspective we are optimistic, there is a famous saying that there is no gain without pain.

“I think we are in that situation, going through a hard time, in terms of high interest rates, inflation and trying to converge the exchange rates.

“We are seeing a bigger shift towards dollarisation at the moment because people cannot afford to borrow at high interest rates of 200 percent,” he said.

McSharry added; “We hope it is a temporary situation and the interest rates are brought down in the short to medium term so that we start to see the flow of ZWL in the economy and an all balanced approach to the multi-currency environment.”

He said under the current status, banks have given their customers limited access to credit as they cannot stretch themselves too far in terms of lending.

“We have to manage our liquidity so that we don’t have a liquidity crisis and manage our capacity to lend. That is a tough stance for our customers,” said McSharry.

He said FCB’s thrust has been to support the productive sectors of the economy such as agriculture and the bank is scouting for other lines of credit from third parties.

McSharry said while customers are worried over transaction costs, they have to bear in mind that banks are also a business and need to survive.

He said as banks are businesses, their cost structures do not escape inflation, devaluation of the currency or the alternative rate and official rate.

“We are not immune, banks need to survive, they have to have realistic and relevant bank charges.

“For instance, if inflation is at 256 percent, and we are lending at 200 percent, banks are losing real value, at the same time our costs would have gone up by over 256 percent.

“Unless we can manage efficiency combined with increased bank charges, we will not have a sustainable banking environment in the country,” he said.

Earlier in the year, FCB in partnership with the European Investment Bank and the European Union secured a developmental line of credit to the tune of EUR 12,5 million.

The funding was set to develop eligible investment projects undertaken by Small to Medium Enterprises (SMEs) and MidCap companies under First Capital Bank Limited locally.

This credit line is part of the Zimbabwe Private Sector Facility from the Impact Finance Envelope of the Investment Facility (IF) that is extended by the European Investment Bank to a group of financial institutions located in Zimbabwe.

McSharry said the bank is in the process of going through the credit process.

“While we signed the agreement earlier in the year, there is continued due diligence that has to happen as we go through the process.

“Now we are going through the credit process and we hope we will be through that process and the facility will be used up,” he said.

He added that the bank is looking at the EIB to see if they have additional lines of credit to take part in.

Meanwhile, during the half year period to June 30, 2022, the Bank’s loans to customers increased by 37 percent to $21,4 billion from $15,6 billion as at December 31, 2021, with 68 percent of the business having been underwritten in foreign currency.

On the same basis, total deposits adjusted for inflation grew by 14 percent from $35,9 billion as at December 31, 2021 to $40,8 billion as at June 30, 2022.

The Bank’s asset quality remained satisfactory, with a loan loss ratio of ,6 percent against a non-performing loan ratio of 1,7 percent, well within the Bank’s appetite.-ebusinessweekly