PHILLIMON MHLANGA
Government has slammed banks for failing to sweat more than US$1.2bn of cheap capital sitting on their balance sheets, Business Times can report.
The attack on banks comes after the financial institutions have failed to lend to willing borrowers with solid credit scores looking for cash, particularly in the productive sector.
Secretary for finance and economic development, George Guvamatanga, questioned the rationale by the country’s lenders of sitting on a “huge chuck” of US dollars instead of sweating their balance sheets.
Banks have been rewarded with huge deposits, but they are failing to put that capital to productive use.
Failure to do so has weighed on their profitability.
Consequently, to cover for their inefficiencies, banks now rip depositors who are subjected to punitive bank charges and transaction fees.
He described local banks as inefficient.
“I am a banker myself and I can tell you that our banks are inefficient,” Guvamatanga told a post-monetary policy meeting last week.
“They [banks] are sitting on about US$1.2bn real money but lending only a very small portion. I can tell you that when banks are not utilising 50% or more of their balance sheet, they would not be profitable. We have a huge number of depositors looking for those US dollars. Why not utilise those US dollars which are lying idle to support production.”
At its core, banking is about channelling idle savings, in the form of deposits, to those who need capital, Guvamatanga said.
In return for their hard-earned cash, depositors, who would have parked their savings in banks, would receive interest from the bank.
In return, the bank earns profit by charging higher rates than those available to savers to those it lends.
But, local banks do nothing like that at the moment.
The banks’ balance sheets highlight this.
The banks have also not been paying interest on demand deposits.
Flicking through the results of local banks financial results published in the past few weeks, it is clear that the banks are also guilty of passing on the cost of their operational inefficiencies to customers.
Their non-interest income upstaged funded income.
But, the president of the Bankers Association of Zimbabwe, Ralph Watungwa said: “There is mention of payment of interest on demand deposits. It’s very difficult to lend because this is not money available for lending.”
The lenders have also been slammed for their inefficient Know Your Customer (KYC) processes which have failed to flag new or existing customers who are potential threats to the system.
Indications are also that local banks are “stubbornly” facilitating dubious entities abusing the foreign currency auction system.
Local banks have also been accused of facilitating the opening of bank accounts for shelf companies, with no history of business, for purposes of getting funding from the foreign currency auction system.
Reserve bank of Zimbabwe governor, John Mangudya, said some of the companies, with links to high profile people, apply for as much as US$400 000.
He said some banks agree to facilitate dubious entities even if they do not have the equivalent in local currency for such transactions.
Mangudya called banks to order. He said there were inefficient KYC processes in the banking sector.
KYC has been put in place to investigate whether a new or existing customer has been flagged as a potential financial crime or poses a risk.
“The first line of defence against such costly malfeasance should be banks,” Mangudya said.
He added: “Why should banks allow these dealers to open bank accounts for shelf companies who come to the auction bidding for about US$400 000.
When we do our checks, we see that they do not have enough funds to cater for that. It’s just a parallel market dealer.
If you ask how they were allowed to open an account, you find that they have a big brother assisting. Banks should assist us so that those coming to the bank are bona fide. Some are not good for this economy.
They want arbitrage opportunities. We are disappointed with the banks. They are not able to see such things. That’s the area of weakness.
To the Bankers Association of Zimbabwe, let’s put our house in order.”
