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| Business |
| Banks in profits super highway |
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by
Aubrey Mchulu, 19 August 2004
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17:51:00
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If profits, 10-digit profits for that matter, are a measure of success in business, then the banking and financial services sector in the country is the only industry swimming above the rest.
Published results of companies listed on the Malawi Stock Exchange (MSE) bear testimony to this as out of the nine listed companies, it is only Illovo Sugar (Malawi) Limited and conglomerate Press Corporation Limited (PCL) which made huge profits outside the banking and financial services sector.
But, PCL, on the other hand, holds majority shares in the National Bank of Malawi which made a K1.2 billion after-tax-profit hence it cannot be entirely detached from the banking industry.
Commentators from industry, banks, the stock market and consumers agree that banks and other players in the financial services sector, that also includes insurance firms, are indeed swimming in profits but differ on the reasons.
But why and how?
Some of the commentators argue that in an economy where other sectors are struggling to survive, there is something wrong with the scenario where only banks and other players in the financial sector are making huge profits.
MSE operations manager John Kamanga said in an interview that in recent years banks have been deriving their profits from treasury bills (TBs) and not their core business of lending money to people.
Using the TBs, commercial banks and other financial institutions have been lending money to government at rates of up to 45 percent-plus which have now plunged to around 24 percent following the Reserve Bank of Malawi’s (RBM) decision in June to cut interest rates by 10 percentage points to 25 percent.
Kamanga observed that the 47 percent-plus lending rates that prevailed until late last year made it expensive for the other sectors of the economy to borrow and even pay dividend.
“Despite the treasury bills crowding out the private sector, the banking sector contributed a lot. In some cases, up to 50 percent of some banks’ assets went into the money market,” he said, adding:
“They are still enjoying that momentum from treasury bills because TBs are risk-free investments where you are sure of getting what you lend out.”
Ever-blunt Consumers Association of Malawi executive director John Kapito described the banking and financial sector as “one of the biggest abusers of consumer rights.”
He accused the banks of contributing to the death of industry in the country. He said banks should realise that it is industry which keeps them in business hence they should be able to offer advise to those collapsing so that they should continue getting the support.
“In an environment where everyone else is collapsing, it does not make sense for only one sector to stand tall. If it is a question of good management, the private sector too has good managers but they are being squeezed by the banks,” said Kapito.
Chancellor Kaferapanjira, Malawi Confederation of Chambers of Commerce and Industry (MCCCI) chief executive, said the major challenge facing the economy is for the current government to ensure a total restructuring of the financial sector.
“You can tell from balance sheets that they [banks] are making money on the heels of other sectors which are struggling. This is not good for the economy,” he said.
But all is not lost as, according to Kaferapanjira, moves by the central bank to lower interest rates and the liquidity reserve requirement promise to reduce the cost of financing which will enable industry to borrow and invest to revive the economy.
In his address during the opening of the new Nedbank (Malawi) Limited Blantyre Branch last Thursday, RBM governor Elias Ngalande said for a long spell, banks and all financial institutions in the country have operated under challenging economic conditions characterised by high interest rates and depreciation of kwacha, among other factors.
But Ngalande, whose audience included chief executive officers from almost all commercial banks in the country, said he expects the banks to pass gains of recent reductions in interest rates to their customers.
“I am saying this because when I read the newspapers, I get the sense that there is a feeling of loss in some quarters,” he said.
But Ian Bonongwe, president of the Bankers Association of Malawi, said the trend is common in a highly inflationary environment like Malawi and has nothing to do with exploitation of clients.
He said in the case of the Malawi economy, it is also the way the economy has been developing in recent years where traditional growth sources of agriculture and manufacturing have not faired well.
Bonongwe, who is also general manager for Malawi Savings Bank Limited, also said even most international banks are earning their income out of commissions and services than the traditional business of lending money to people.
“Lending remains the core business but you are seen to be a solid bank when most of your income comes out of services,” he said.
Malawi only has one investment bank, the sole building society and two other merchant banks transformed into commercial banks which, observers argue, is an indication that they see good business in that area which now has nine players than offering business advise and financing projects. |
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