Stanbic calls for economic reforms

STANBIC Bank (Stanbic) has called for currency reforms and measures to support industrial growth, foreign currency generation and price stability in order to put an end to "turbulence in the operating environment", currently fuelled by unsustainable budget deficits.

The mining-focused financial institution, which is a unit of South Africa's Standard Bank, reported strong half-year earnings for the period ended June 30, but urged government to address macroeconomic imbalances, a major source of headwinds to performance.

After-tax profit climbed 28% to $16,4 million from $12,8 million in the comparable period the year before, butressed by net interest income which grew 28% to $32,6 million on account of the "acquisition of additional short-term investment, together with new lending assets which were written during the period," according to a statement by chief executive officer Joshua Tapambgwa.

"The bank's lending book grew by 16% from $330 million as at the end of December 2017 to $384 million re-inforced mainly by the new lending assets which were secured, combined with an increase in facility utilisation by some customers during the period," Tapambgwa said.

Income from fees and commission also rose 20% to $9,4 million as the volume of digital transactions surged as a result of cash shortages, supported as well by the bank's increased digital capabilities and growth in income from custodial services. The bank reported a phenomenal rise in the value of assets under its custody during the period.

The outlook statement by Greggory Sebborn, Stanbic chairperson, dwelled on the most devastating financial fragilities bedevilling the financial services sector, notably foreign currency shortages; excessive money supply growth; currency instability and price instability.

He also called on government to contain fiscal deficits and intervene in the economy with measures to buttress industrial growth, foreign currency generation and sustainable economic growth.

Zimbabwe is in a grave foreign currency crisis. Since 2014, foreign currency reserves have fallen to under two months of import cover, according to a 2017 report on the IMF Article IV consultations with Zimbabwean authorities.

The country also faces crippling cash shortages, which could easily aggravate to currency crisis if left untamed. The crisis has its roots in foreign currency shortages and excessive growth in money supply officially attributed to Treasury's fiscal deficit financing activities especially borrowings through its overdraft facility with the Reserve Bank of Zimbabwe (RBZ).

Through the overdraft facility, the RBZ has created unfunded transferrable deposits to government and its creditors, resulting in unsustainable money supply growth and excessive inflation pressures.

According to the RBZ monthly report for May, the year-on year expansion in transferable deposits hit 51% in May 2018, while negotiable certificates of deposits (NCDs) increased 43%, resulting in about 40% annual growth rate in broad money.

Bond notes and coins in circulation increased at a slower rate of % to $354,20 million in May 2018 from US$175.77 million in May 2017.

The year-on-year inflation rate hit 4,29% in July 2018 from 2,91% in June 2017, an increase of 47.48% in the Consumer Price Index which measures changes in the general price level, driven mainly by food and non-alcoholic beverages, according to the Zimbabwe National Statistical Agency.

For sustainability, these macroeconomic imbalances should be addressed, according to Sebborn.