CREDIT risk remains a key challenge as evidenced by the average ratio of non-performing loans to total loans (NPL/TL) which increased to 16,96 percent in the first quarter, up from 15,92 percent as at December 2013.
According to the Reserve Bank of Zimbabwe’s (RBZ) quarterly report on the banking industry, despite the increase in NPLs, bank lending was skewed towards consumptive lending at the expense of productive sectors of the economy.
“This trend is partly a reflection of macroeconomic challenges that have militated against borrowers’ ability to service loans,” said RBZ.
“The unchecked growth in non-bank credit in the economy may trigger a credit crunch and a wave of company insolvencies and bankruptcies stemming from defaults.
“The currently unregulated informal credit market has since dollarisation caused people to spend far more than they could afford, leading to excessive indebtedness. The absence of a functional credit reference mechanism in the economy has made the situation worse.
“A functional credit bureau would enable businesses and banks to effectively assess counterparty risks and hence improve the efficiency of their credit processes. It also allows for the accurate pricing of risk and therefore will allow for the wider availability of credit.”
Analysts say Zimbabwe needs a moral code of conduct to combat reckless lending.
Whilst there is no evidence of a systemic crisis in the banking sector as a result of the growing unsecured lending, government and banks and other stakeholders must act soon to protect consumers from abuse by credit providers and intensify efforts to educate consumers on financial literacy.
The credit market in Zimbabwe is fast becoming more complex to manage risk effectively with the lack of information on the behaviour and exposure of clients increasing the risk of financial losses.
The RBZ report says a few banking institutions with a combined market share of only 8,14 percent in terms of assets were facing liquidity and solvency challenges and these were considered to be of low systemic importance.
However, the banking sector remained profitable during the first quarter, with an aggregate net profit of US$20,5 million up from US$0,47 million during the corresponding period in 2013.
“On aggregate, as at 31 March the banking sector was capitalized to the tune of US$909 million and US$755 million in terms of net capital and core capital respectively, compared to US$933 million and US$784 million as at 31 December last year.Advertisement
“Core Capital diminution is largely attributed to losses incurred by the non-compliant banks during the quarter under review,” said RBZ.
Deposits continued to be dominated by demand deposits which accounted for 57,9 percent of total deposits. Five banking institutions held cumulative deposits amounting to US$3 billion, representing 61,7 percent of total banking sector.
RBZ said one banking institution continued to account for the largest share of total deposits, with deposits amounting to US$1,46 billion and representing 29,88 percent of total banking sector deposits.
In terms of capitalisation; the report said only one bank had surpassed the US$100 million minimum capital requirement effective 2020.