TRYNESS TEMBO, Lusaka
A WELL capitalised banking sector is key to any country’s competitiveness on the global market.
The important role banks play in supporting economic growth cannot be overemphasised as they channel money to different sectors of the economy and ensure the smooth operations of these sectors.
Two years ago, the banking sector faced numerous challenges as the economy struggled to make headway amid low copper prices, severe energy shortages, a weak Kwacha and rising inflation.
To control the situation, the Bank of Zambia last year significantly tightened monetary policy to safeguard price stability, which resulted in low market liquidity, higher interest rates and contributing to higher non-performing loans on the balance sheet of banks.
Currently, monetary policy rate (MPR) stands at 9.75 percent, liquidity levels are around K489.37 million and interest rates are hovering around 26 percent to 35 percent.
Economic recovery from the 2015 to 2016 doldrums had been at a subdued pace, with the growth rates over the last two years being lower than in previous years, when Zambia’s gross domestic product (GDP) averaged 6.7 percent.
Currently, the price of copper is at about US$6,788 a tonne, the Kwacha is trading in the range of K9.40 and K9.50 while inflation was at 7.1 percent.
Although economic performance last year was better than 2016, loan growth had been flat throughout the banking industry, mainly attributed to the high interest rates.
Currently, there are 19 commercial banks operating in the country.
Bankers Association of Zambia public relations and administration officer Mirriam Zimba says commercial banks’ assets increased by 0.5 percentage point from K70.9 billion to K71.3 due to increases in balances with local financial institutions by 100.2 percent.
Investments in securities also increased by 5.2 percent and balances with financial institutions abroad rose by 7.4 percent.
The positive trend in the economic indicators coupled with actions by BoZ to ease the tight monetary policy environment has provided an opportunity for financial institutions to achieve positive growth and strong financial performance.
BAZ notes that the industry recorded an increase in profit after tax by 189.9 percent from K35.1 million at the end January to K101.8 million in February.
However, interest income from loans and advances reduced by 8.2 percent, non-interest income from commissions fees and services changes declined by 2.7 percent while income from foreign exchange transactions dropped by 38.1 percent.
Last year, gross non-performing loans increased by 5.7 percent from about K3 billion to over K3.2 billion.
What does this show about the current performance of the Zambian banking sector?
Giving an update on the performance of the sector, BoZ Governor Denny Kalyalya advised banks to look beyond the challenges and take advantage of the opportunities to contribute to the growth of the economy.
Dr Kalyalya called on banks to focus on opportunities so that the banking sector does not shrink.
“Increasing financial inclusion is achievable through utilisation of technology rather than depending on physical buildings…there several opportunities in the sector, players just need to identify them and take advantage
“Human capital also plays a major role in the development of the sector and technology that is where I think more needs to be done to bring sustainability to our industry over a long period of time,” he said.
The central bank has further urged banks to take advantage of opportunities that continue to exist around technology-enabled products and services that can immensely contribute to the growth of the banking sector in the country.
Going forward, BoZ expects a lot of work to be done in the use of technology and increase financial inclusion to 80 percent from current 60 percent.
Economic factors give a rise to the need for banks to adapt to survive and improve their productivity to remain profitable.
Pricewaterhouse Coopers (PwC) financial services leader Andrew Chibuye has encouraged the banking sector to partner with Government and other relevant stakeholders to work together in contributing to the economy.
Mr Chibuye observed that opportunities continue to exist around technology enabled products and services that facilitate access to a broad range of affordable financial products.
“The recent past has certainly been challenging, however, we believe there is reason to be optimistic about the immediate and future prospects of the banking industry and economy as a whole, albeit with some caution,” he said.
A local institution that promotes financial inclusion notes that banks need to make access to financial services easier and design human-centric products to understand the needs of the people especially in rural areas.
Financial Sector Deepening Zambia chief executive officer Betty Wilkinson urged banks to invest more in agency banking especially in rural areas where there is no physical presence of financial institutions.
“When we talk about financial inclusion, banks should think about potential clients to grow the banking sector. Banks also need to adopt technology in their operations to reach out to more people, make it easy to deliver services and reduce paper work,” she said.
Despite the difficulties that the sector has faced in recently years, Zambians need banks to contribute to the economic growth agenda.
Provision of affordable finance to support other sectors of the economy is essential for economic growth and this is the role banks played
TRYNESS TEMBO, Lusaka