Bank earnings fall, non-performing loans up

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BANKING  sector earnings are seen falling this year on the back of sluggish economic growth which will push up non-performing loans, already the highest in Africa, a leading stockbroking firm has said.
Total profit after tax for banks listed on the Zimbabwe Stock Exchange (ZSE) slowed to $83,8 million in 2013 relative to $131,86 million in the prior year, weighed down by a central bank directive capping interest rates and service charges.
Nonperforming loans (NPLs) stood at 15,92 percent as companies and individuals defaulted as the economy slowed down after averaging a 9,3 growth between 2009 and 2012.
“Worsening non-performing loans position continues to be an albatross around the banking sector’s neck and the result has been reduced lending to the economy which has further worsened the NPLs situation,” MMC Capital said in its banking sector report for the year.
“As the local economic activity slides further, our view is that industry NPL ratio will continue to rise as borrowers fail to repay. Reduced lending is disastrous to an economy as key productive sectors will starve from working capital.”
The report was based on earnings from 13 commercial banks, three building societies and one savings bank, with a focus on key performance measures of profitability, deposits, loans and advances and total assets.
MMC said the decline in earnings was partly due to the Memorandum of Understanding (MoU) between the banks and the central bank which curbed levies between February and December last year.
Income statement impairment charges increased by 70.91 percent to $71.44 million in 2013, a figure which casts doubt over the quality of asset creation in Zimbabwe.
Two banks, CBZ and NMB contributed almost 50 percent to the impairments.
Total assets grew by seven percent and the loans to deposit ratio also weakened to 78 percent compared to 92 percent in 2012, reflecting a shift in lending approach in line with the risky credit environment, MMC said.Advertisement