NON Performing Loans (NPLs) in the country’s financial service sector have increased to an average of 16 percent from the 15,3 percent revealed by the World Bank in May last year the Bankers Association of Zimbabwe (BAZ) said last week
Responding to questions before the finance and economic development Parliamentary portfolio committee last Wednesday, BAZ president George Guvamatanga said the surge in NPLs resulted in banks being more cautious in their lending.
“We have witnessed low lending in the banking sector, this is a reflection of NPLs which now stand at an average of 16 percent,” said.
The more non-performing loans a bank has the poor its liquidity becomes. In other words, lenders are creating or worsening the liquidity problems by lending to people or companies of poor credit-standing in search of high returns.
“This is just an average which means the rate is actually higher for other banks. The NPL’s have surged due to a variety of issues which include structural challenges in the economy and failure by borrowers to pay back their loans,” Guvamatanga said.
The increase in non-performing loans has been exacerbated by the fact that the central bank is unable to create liquidity through monetary policy intervention since it cannot print the foreign currencies we are using in primary transactions.
Guvamatanga attributed some of the non-performing loans to poor corporate governance in the sector.
“Some of the NPLs are a result of poor corporate governance in some banks which give out insider loans. As BAZ, we believe that the Reserve Bank of Zimbabwe should act against institutions that engage in such practices as they should not be allowed to survive,” he said.
In others countries, for instance in the United States where quantitative easing is being used, liquidity injection becomes a mitigating factor in the sense that it brings in new money which is used to meet these commitments.
The African Development Bank (AfDB) in its August monthly economic review last year said, individuals have been receiving the largest share of loans and advances compared to productive sectors since March 2013.
“In order to foster positive economic recovery, more loans and advances should be advanced to the productive sectors,” said the regional banking group adding that market indications were that some individuals borrow to finance their small and medium enterprises, which constitutes productive borrowing.Advertisement
“The large share of individual loans and advances is an indication that although individuals are charged higher interest rates than corporates, interest rates are not high enough to deter individual borrowing. Individuals might also be less interest rate sensitive than corporates, or banks might have more incentive to lend to individuals,” said AfDB.
Guvamatanga however argued that despite the challenges bedevilling the economy, the banking sector remains sound and safe.
“You cannot judge the banking sector on the basis of a few institutions; overall the banking sector is safe and sound. Yes we are faced with a few challenges but I believe the measures pronounced in the budget are sufficient to tackle these problems if implemented,” he said.