Electronic payments boost banks' revenues

By Staff reporter | 28 Apr 2019 at 12:02hrs
Bank cards
THE proliferation of electronic payment systems has opened an avenue for the country's financial services sector to boost their revenue as they are making rich pickings from facilitating payments.

Most banks recorded huge profits last year driven by a number of revenue streams including interest and non-interest income.

In the absence of physical cash since late 2016, the Reserve Bank of Zimbabwe (RBZ) has been encouraging citizens to use electronic forms of payments such as transfers, mobile money and POS machines.

This has cleared the way for banks to reap huge rewards from transaction costs.

For the year ended December 31, 2018, Agribank recorded a 63 percent jump in profit after tax to US$12,9 million driven by growth in non-interest income and interest income.

The bank's interest income rose by 21,2 percent to close the year at US$37,1 million on the back of increased loans and advances to farmers.

Agribank chief executive officer Mr Sam Malaba, told journalists in Harare last week that gross loans and advances shot up to US$147,2 million last year, representing a 53,4 percent surge, compared to the comparable period.

Mr Malaba said the profit recorded by the bank was mainly driven by "growth in non-interest income as well as interest income, against the background of marked growth in the loan book during the year".

Agribank's non-interest income grew by 35 percent to US$16,4 million compared to the prior year owing to increased transactions from electronic banking and ICT delivery channels, making up 75 percent of non-interest income.

In 2018, Agribank generated US$12,3 million from electronic channels and POS machines. The rise in non-interest income last year indicates a continued surge in use of electronic payment platforms.

Mr Malaba said commission income from electronic channels and POS machines also rose by 78 percent from the prior year, and he sees scope in boosting the revenue stream for the bank to generate more money.

"This remains a growth area and the strategy is on enhancing non-funded e-channels related income," said Mr Malaba.

Last year, income interest and non-interest income contributed 31 percent and 69 percent, respectively, to income generation.

Similarly, FBC Holdings Limited posted a 91 percent jump in profit after tax to US$44,4 million for the year ended December 31, 2018.

The group's net interest income was up 41 percent to US$65,2 million from US$46,1 million while net fees and commissions income increased by 35 percent to US$42,8 million.

NMBZ Holdings, which released its financials for the year ended December 31, 2018 last week, generated just over US$25,5 million from "fee and commission income".

In 2017, NMBZ had raked in just above US$18,8 million from the revenue head.

In the period under review, NMBZ posted a profit before taxation of US$27,1 million, up from US$13 million in the comparative period.

This gave the company a comprehensive income of almost US$21,3 million.

The group achieved a basic earnings per share of 5,43 cents, up from 2,58 cents in 2017.

First Capital Bank, which posted a 23 percent jump in profit after tax of US$24,3 million last year, generated just over US$27,4 million from "net fee and commission income".

However, last year's net fee and commission income, declined from US$32,4 million realised in 2017.

Economist Mr Persistence Gwanyanya told The Sunday Mail Business last week that it now looks like the "norm that bank performance today is being driven by non-interest revenue".

"The recorded growth in non-interest revenue is attributable to increase in transactional revenue due to growth of a cash-lite economy occasioned largely by cash challenges in Zimbabwe.

"Today, more than 90 percent of the transactions are electronic, which has resulted in increase in transactional revenue," said Mr Gwanyanya.

He added that banks are increasingly derisking, which implies a preference to invest in less risky debt instruments such as Treasury Bills (TBs) instead of lending, which is a high risk.

"The reduction in loan to deposit ratio to around 40 percent from close to 100 percent in early years of dollarisation bears testimony to the assertion that financial institutions are increasingly derisking. "However, I should hasten to say that this development is not good for the economy as it largely reflects the crowding-out effect, where lending to Government results in less money for the private sector at a time when the economy direly seeks to grow private sector investment," said Mr Gwanyanya.

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