Financial services companies reel under mounting costs

Local companies that rely on foreign systems and software are reeling under pressures of high cost of foreign currency and limited availability, a situation that is threatening viability as well as relationships with foreign service providers.

Following Government’s decision to make the Zimbabwe dollar the only legal tender in the country, some companies have suffered exchange losses mainly arising from their foreign obligations.

The hardest hit are companies whose goods and services are regulated and cannot be quickly adjusted in line with the weakening local currency.

Since its introduction the local currency has weakened from trading at par with the US dollar to an exchange rate of 17.7 as of Friday.

However prices, tariffs, commissions and fees charged by some of the affected companies have not quickly adjusted to meet the increased cost of foreign currency required to meet foreign obligations for systems and software licences.

Telecommunication and financial services companies are also in this category as they rely on foreign systems and software in their operations.

But with regulated and sometimes static tariffs and charges, they have not been able to meet some of their costs resulting in margin erosion.

A source at EcoCash said the major upgrade they carried out in November last year cost the company upward of US$15 million and yet charges are taking longer to be reviewed for them to be able to recover the costs.

“We have seen banks reviewing their bank charges, but for us the approval is not coming and yet we are in the same boat with banks, we have foreign obligations that need to be met,” the source said.

It added that parent company Cassava reported exchange losses of $506 million in its maiden half year results to 31 August 2019, which were reported in December of last year, largely because of foreign exchange denominated obligations.

ZB Financial Holdings chief executive Ron Mutandagayi said the banking group has been able to at least service current obligations, but legacy debts owed to foreign service providers are still pending.

The biggest worry at the moment are legacy debts that the RBZ said it would assume, “we are still awaiting finalisation of those debts”.

Following currency reforms, the RBZ announced that it would assume foreign debts of approximately US$1,2 billion and these, according to Mr Mutandagayi, include obligations for licence fees used by the bank.

The other worry highlighted by Mutandagayi, is that the cost of servicing external obligations is now high given the currency weaknesses.

“Costs have gone through the roof and sometimes banks are not in a position to absorb all the costs,” he said.

He said ZB Holdings requires between US$2 to US$3 million to meet licence fee obligations, but with currency weaknesses some of the costs pressures are have to be absorbed through increase in transaction fees.

A local stockbroker, who however requested not to be named, said it was the same in the Stockbroking fratenity.

“We have applications that are in the queue for repatriation but banks prioritise foreign payment in proportion to your influence and connections to the bank.

“We need just over US$6,000 per year for Sybrin, the system we use, but that is still a lot in RTGS,” he said.

“Everything is pegged to the USD and there is a huge increase on our expenses because of that.

“Our fees are fixed. The hope is that share prices will increase at the same rate as the exchange rate, but that is never the case. Prices should be up 17 times cumulatively for us to have kept up,” the stockbroker said. ENDS/

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