Good year for Zim banks: BAZ
LIVINGSTONE MARUFU
Despite difficult operating conditions, Zimbabwe’s financial sector performed remarkably well in 2023, Fanwell Mutogo (pictured), the CEO of the Bankers Association of Zimbabwe, said this week.
“Overall, the banking sector performed well in 2023 as it remained safe and sound with a strong basis to stimulate economic growth through financing other sectors like mining and agriculture.
“Though the sector was not immune to various economic headwinds, it remained resolute and its performance was okayish under the circumstances,” Mutogo told Business Times.
Many analysts speculated that the lenders’ positive position might be explained by their increased emphasis on non-funded income rather than their primary activity of lending money, even though other economic sectors were suffering as a result of their high fees and charges, which affected all depositors, including the most vulnerable.
Recently, Finance, Economic Development and Investment Promotion Minister Professor Mthuli Ncube said the financial sector has remained sound and stable, with strong capital and liquidity positions, as well as strong risk management practices on the back of proactive, holistic and supportive stabilisation measures by the authorities.
“The banking sector continued to support the funding requirements of the productive sectors of the economy as evidenced by loans to the productive sectors, which constituted 74% of total loans as at September 30 2023.
“In the outlook period, the banking sector is expected to continue to play an even greater role in supporting a sustainable and inclusive economy,” Professor Ncube said.
Aggregate banking sector loans and advances increased to ZWL$9.70 trillion as at September 30 2023 from ZWL$1.97 trillion as of March 31 2023 and the growth in banking sector loans was largely due to growth in foreign currency-denominated loans, whose proportion increased to 88% as at September 30 2023 from 78% as at March 31 2023.
He said the government in collaboration with relevant stakeholders has commenced the formulation of the Financial Sector Development Strategy to sustain the financial stability and inclusive growth.
This new Strategy is expected to be launched during 2024.
Ncube said all banking institutions were in compliance with prudential capital ratios, that is, the prescribed minimum capital adequacy ratio of 12% and the tier 1 ratio of 8% at 43.2% and 27.3%, respectively, as at September 30 2023.
Banking sector core capital increased to ZWL$5.09 trillion as at September 30 2023 from ZWL$803.08bn as at March 31 2023, largely attributed to the capitalisation of retained earnings emanating from the revaluation of investment properties and foreign currency-denominated assets.
“In light of the need to hedge institutions’ capital against potential exchange rate shocks, banking institutions are adopting a number of capital preservation strategies which include investing in gold coins and Gold-Backed Digital Tokens (ZiG), investment properties, as well as keeping a portion of the capital in US$,” Ncube said.
A total of 15 out of 18 banking institutions (excluding POSB with no prescribed minimum capital requirement), reported core capital levels that complied with minimum regulatory requirements.
The Treasury chief said non-compliant banking institutions are implementing various initiatives to bolster their capital and ensure compliance with the minimum capital requirements by December 31 2023.
It is understood that the banking sector asset quality remained low, as reflected by an aggregate non-performing loans ratio (NPL) of 2.34% as at September 30 2023.
The ratio remains within the Bank’s risk appetite limit and the acceptable international threshold of 5%.
The low NPL ratio reflects robust credit risk management systems and strong internal controls by banking institutions.
But some critics say the low NPL ratio may be a result of banks’ stringent measures.
Professor Ncube said banking institutions have sufficient liquidity to intermediate utilising the foreign currency and ZWL$ deposits, as well as external lines of credit.
Aggregate banking sector deposits continued on an upward trajectory to ZWL$16.08 trillion as at September 30 2023, dominated by foreign currency-denominated deposits which accounted for 80.49% of total deposits.
In addition, the banking institutions kept up strong liquidity positions, which served as a vital source of support in the face of a shifting macroeconomic landscape.
As at September 30 2023, the sector’s average prudential liquidity ratio was 61.74%, reflecting a high stock of liquid assets in the sector.
The banking sector comprises 14 commercial banks, 4 building societies and 1 savings bank. In addition, there are 219 credit-only microfinance institutions, 8 deposit-taking microfinance institutions (DTMFI) and four development financial institutions.
Foreign currency deposits improved to US$1.6bn, as of the end of September 2023 from around US$300-400 million in 2018.
The phenomenal growth in foreign exchange deposits in the banking sector and revaluation effects on foreign exchange balances, in line with exchange rate movements remain the economy’s two biggest drivers of money supply growth.
As at September 2023, foreign currency deposits accounted for 83% of total money supply, compared to 62% in December 2023.
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