Banking industry expectations in 2022
THERE is no question that the banking industry will be significantly changed as a result of Covid-19.
Given the rise of mobile money in Zimbabwe and the up-tick in electronic money usage in light of hard currency challenges, many banks were already transforming to become more digital by default and increasing their digitalisation drive to reduce costs and to improve the customer experience. But Covid-19 has vastly accelerated the drive to this new operating model.
Zimbabwean banks have had to adopt new ways of working, upgrading both back-office and client-facing digital capabilities, and driving paperless approaches and automation.
It is expected that a portion of Zimbabwean bank employees will continue to work from home indefinitely, as the effects of vaccination programmes are yet to be seen, and as some of the largest users of corporate real estate, banks will be revisiting office configuration and work locations.
In addition, banks will need to develop new distribution strategies that take advantage of increased digital client interactions. Going forward, Zimbabwean banks, along with the rest of the world’s banks will need to define new approaches for tracking and reporting liquidity metrics, different approaches to valuation, and new ways of monitoring obligers.
If there is one thing that Covid-19 has taught us, it is that almost anything can happen. Banks will need to fundamentally re-evaluate their resiliency across the complete spectrum of risk — operational, liquidity, capital, market, and credit risk — to model for the next unforeseen event.
As we enter a likely recessionary period, regulatory requirements could rise.
Meanwhile, as banks increase the use of AI and digital technologies, are they cyber secure, is the common question. New risk models and strategies need to be developed as well as processes and protocols to accompany them.
Covid-19 has seen a cross-sector working from home “revolution” including in banking.
Going forward, banks should identify the optimal mix for the operating model and ensure they have sufficient infrastructure to facilitate long term mass flexible working.
In turn, this means that the purpose and use of corporate real estate will need to be re-evaluated. At the same time, the labour force is likely to become ever more automated, with resiliency paramount especially with the new trending self-service through online banking in Zimbabwe.
Organisational culture and leadership, on-boarding, training, upskilling, and the attraction of new talent together with tax implications due to reduced global mobility and higher levels of remote working, all need to be factored into a complex set of dynamics.
According to history, Zimbabwe’s banking industry has, over the past two decades, operated under difficult and unique conditions. For a decade prior to the adoption of full dollarisation, the economy experienced high levels of inflation and consequently declining growth.
This period also coincided with improved bank supervision and the implementation of new banking legislation that sought to liberalise the industry.
These developments, coupled with volatile capital and deposit bases during the hyperinflation period, had a bearing on competition and stability of banks operating in the country during that time.
The adoption of full dollarisation ushered in a radically new environment, which created both opportunities and challenges for the banking industry.
It is against this background that the Government assesses how the evolution of competition impacted on stability in the country’s banking industry from 2009 up to date. Numerous resolutions by the Government have been made to promote stable banking and is part of the Vision 2030 objectives.
To achieve this goal, the finance department in Zimbabwe evolved some strategies for 2022 banking in the National Budget Statement.
The central bank is implementing a three-pronged policy approach of conservative reserve money targeting framework, supported by prudent management of the exchange rate through the auction system, as well as measures to maintain and sustain the current financial sector stability.
The conservative money targeting framework is meant to ensure that money supply growth in the economy is maintained at levels consistent with projected economic growth and inflation targets, in the short to medium term.
Reserve money growth targets were set at 22,5 percent per quarter in the first half of 2021 and revised downwards to 20 percent per quarter during the second half of 2021 before being further reduced to 10 percent during the last quarter in the face of a resurgence in inflationary pressures in the economy. As a result, reserve money growth was kept within the set quarterly targets throughout the three quarters of 2021.
As at end of September 2021, reserve money was $26,24 billion, compared to a year-end target of $28,87 billion due to aggressive liquidity mopping measures, through open market operations, coupled with foreign exchange sales at the auction.
Going forward, the Government through the central bank, will continue to review the reserve money targeting framework in line with inflation and exchange rate developments, as well as other macro-economic fundamentals.
The Government continues to ensure uninterrupted and timely supply of foreign currency to key sectors of the economy through the foreign exchange auction system.
The Bank is currently on foreign currency auction allotments and has cleared the backlog which was previously experienced.
Amounts allocated through successive auctions increased significantly for both the main and small medium enterprises auctions, bringing the total allotments to US$2,34 billion as at November 2, 2021.
Credit to Government was mainly in the form of Treasury bill holdings by banking institutions, while credit to the private sector, which had remained subdued in the past few years, is now picking up in both local and foreign currency terms. As at August 31, 2021, the loanto-deposit ratio for the banks’ local currency portfolio has been increasing, from below 50 percent in 2019 to around 80 percent by end of August 2021.
However, the overall loan-to-deposit ratio is being pulled down by the relatively low activity on bank lending in foreign currency and is expected to pick up gradually on the first quarter of 2022, on the back of current measures to encourage bank lending in foreign currency.
There is significant progress with regards to improving access to financial services to target segments of the economy through digital financial services especially the rampant use of online banking by almost all banks, introduction of new products, enhanced financial literacy and consumer protection efforts, establishment of low-cost bank accounts, and establishment of women desks and SME units in most of the banking institutions.
In the first quarter of 2022 Financial Action Task Force, (FATF) experts are expected to carry out an in–country assessment on the commitment to implementation of necessary policies and measures to combat money laundering and financing of terrorism.
The visit is expected to result in the country’s removal from the list of non-compliant countries, thereby boosting investor confidence and making it easier for local banks to secure new correspondent banking relationships while retaining existing ones.
In conclusion, this 2022 National Budget seeks to buttress the growth trajectory established in 2021, and enable the economy to build resilience against shocks, including the Covid-19 pandemic.
Short-term views about the economy have compounded the limited ability of the financial sector to mobilise long-term funding.
◆ Dr Keen Mhlanga is the executive chairman of FinKing Financial Advisory and he can be contacted on keenmhlanga@gmail.com; +263719516766.