BANKS have been lambasted for deriving most of their profits from non-funded income which is composed of bank charges, transaction fees and monthly account service charges, instead of income from loans (net interest income).
Report by Kudzai Chimhangwa
Standardbusiness reporter, Kudzai Chimhangwa (KC), caught up with veteran banker and ZABG chief executive officer, Stephen Gwasira (SG), to discuss the constraints faced by banks and his institution’s strategy to mobilise deposits.
KC: Most banks are relying on non-funded income to contribute to the bulk of the total income, saying deposits are short-term and they cannot lend out that money. How can that disparity be reduced?
SG: The revenue mix in our banking business reflects the impact of the current constraints in the macro-economy. With an estimated 90% of banking business being relatively volatile and short-term in nature, the extent to which we can employ deposits to meaningfully intermediate and lend to the productive sectors of the economy, where longer term funding is required, is limited.
Consequently, the contribution of interest income to our overall income earnings is reduced.
Prior to re-capitalisation, ZABG Bank’s capacity to lend was even more constrained, resulting in the bank realising less interest income compared to transaction fees income, which is based on the number of accounts and activity on those accounts.
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What is clearly needed now is a sustained improvement in the macro-economy and this will be predicated upon the availability of medium to long-term credit and also the attraction of foreign investment, as these will help industry to produce much more, especially for the export markets.
KC: What is your assessment of the broad implications on the financial sector of the liquidity crunch, the absence of a lender of last resort, as well as the absence of an interbank market?
SG: The limited access to international credit and the current low levels of foreign investment have negatively affected capacity utilisation in industry, as the liquidity situation has remained generally tight. Our day-to-day operations as a bank are further compounded by the absence of lender of last resort facility at the central bank.
The interbank market is also virtually non-existent. Effectively, this means as a bank, we have to manage our position with great care to avoid shortage situations. This also means credit is not as readily available as it should be to our customers. I should mention that we do arrange placements and borrowings with other banks from time to time, but at present it is strictly on a bilateral basis.
KC: What is the bank’s current target market and which set of products are available?
SG: ZABG Bank is a one-stop financial services institution, focusing on retail banking and small to medium-sized enterprises in all the productive sectors of the economy supported by corporates. ZABG has an extensive footprint of 23 branches, strategically located in major cities, towns and rural areas throughout the country, thus bringing convenience to our valued customers.
The bank is currently finalising the setting up of a US$10 million small-scale miners’ fund that will assist mining companies in acquiring machinery and equipment, among other services.
In recognition of the critical role played by the small to medium-sized enterprises in the economy, the bank is also working on arrangements to actively participate in Gold Trading, through a special purpose vehicle.
We are also finalising plans to launch an enhanced “Cash to Cash” service that will enable even non-ZABG Bank customers to send and receive money on their mobile phones wherever there is network coverage. This will help in ensuring that more people have access to banking services.
We have also developed special savings products such as the Smart Savings accounts for the general public. These accounts earn competitive monthly credit interest and there is no monthly service fees and cash withdrawal fee. The bank will continue to work on innovative solutions aimed at promoting savings.
KC: ZABG has been on an aggressive deposits mobilisation drive lately, reaching out to home seekers and the small-scale mining sector. What strategies are being employed to ensure that this drive remains sustainable?
SG: The bank will continue to grow key and sustainable relationships with stakeholders, as we provide unique and innovative financial solutions to the banking public. To this end, we will keep on developing targeted products and services to our target markets to attract deposits. ZABG is also focusing on liability mobilisation to increase capacity to underwrite more business and to grow transactional income.
KC: What measures has ZABG put in place to narrow the gap between lending rates and deposit rates?
SG: We would point out that the short-term nature of deposits has generally made it difficult for banks to pay credit interest, particularly on retail deposits. However, ZABG has competitive, tiered deposit rates for savings and term deposits, which our valued customers have been enjoying.
