THE overall earnings performance of commercial banks was not adversely affected by the removal of unwarranted bank charges, particularly at the industry level, according to a study conducted by the Financial Sector Deepening (FSD) Zambia.
In September 2018, the Bank of Zambia issued a directive prohibiting certain commercial bank service charges and fees, which it deemed unwarranted.

The report indicated that banks were compelled to become innovative in the way they raised revenue, particularly shifting to intermediation earnings, given that there was little to be done to minimise noninterest expenses.
According to the report, as an industry overall, commercial banks did not suffer a long term loss in noninterest income from the removal of unwarranted bank charges.

It however states that disaggregated by size, the analysis revealed that the upward trend in noninterest income could primarily be attributed to large banks while noninterest income for small banks appears to remain relatively flat.
“The study finds mixed results on the effect of the removal of unwarranted bank charges on commercial bank earnings performance. On the one hand, we see an apparent improvement in bank efficiency in earnings performance – as measured by the efficiency ratio – particularly for large banks,” the report stated.
On the other hand, the report stated, there was across-the-board decrease in the proportion of noninterest income accounted for in operating revenue.
“In terms of a clear break following the regulation change, as measured by a dummy variable that is toggled in the month when unwarranted bank charges and fees were removed, results show no statistically significant difference in the earnings efficiency ratio at the industry level.
“In terms of the ratio of noninterest income as a proportion of operating revenue, both large and small banks experienced a significant drop, which could be expected,” the report said.
It further indicated that in nominal terms, however, revenue from noninterest income either remained level or increased, indicating an effective shift towards other revenue streams, as gross income also continued to increase in nominal terms.


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