The Economics Association of Zambia (EAZ) has observed that the First quarter of commercial banking profitability receded 45% lower to K233.6 million compared to last year and 27.0% from the 4th quarter of 2019 levels.
Association National Secretary Mutisunge Zulu told Money FM News that this was attributed to widening of credit impairments as fiscal posture amplified by COVID -19 risks and a rise in expenses eroded gains generated in the period.
Mr Zulu said the First quarter performance reveals rising credit risks as a consequence of deteriorating fiscal environment amplified by a wave of disease pandemic that has crippled business pulse.
“The industry grapples with elevated funding costs and deteriorating credit quality of counterparts as sectors remain stressed due to health protocols such as social distancing and partial lockdowns in an effort to curb the deadly pandemic,” he said.
He added that apart from these threats to growth, Zambia is in the middle of a power crisis and energy price risks that continue to weigh private sector pulse as evidenced by Purchasing Managers Index readings of 37.2 in April the weakest the country has seen in 5 years.
Mr Zulu explained that the Second quarter performance will provide a fairer picture of COVID-19 effects on the financial sector through some key interventions have been announced in monetary, fiscal and regulatory stimulus to manage credit, solvency, and liquidity risks in addition to providing breathing space for business activity to continue.
He further stated that Non-interest income grew by 38.6% to K1.1billion supported by a 7.0% growth in fee and 97.0% spike in foreign exchange trading income, while Fee and commission income expanded by a softer margin of 7.0% as the effects of the Unwarranted Fee Directives by the Bank of Zambia continue to knock earnings capacity of financial institutions.
Meanwhile, Mr Zulu said Zambia, Africa’s second-largest copper producer was by all three rating agencies downgraded after long term issuer rating reviews.
He explained that the Mining sentiment remains feeble as the sector deals with energy supply uncertainties, weak prices on the London Metal Exchange, litigation and a tax environment that has always been a subject of controversy.
“Weak mining productivity could ripple effect to downstream businesses on the Copperbelt of Africa to suppress activity to result in potential unemployment and thereby higher cost of living condition,” Mr Zulu stated.