Banking sector loans skewed towards productive sectors Dr John Mangudya
Dr John Mangudya

Dr John Mangudya

Oliver Kazunga, Acting Business Editor
LOCAL banks have improved their support to the productive sectors advancing over 73 percent of their total loan book which stood at $3.80 billion last year.

In the past, the banking sector loans and advances were skewed towards individuals who borrowed for consumptive purposes.

Such a scenario raised concerns that it was not sustainable in supporting the revival of companies through credit provision.
Presenting the 2018 monetary policy statement on Wednesday, Reserve Bank of Zimbabwe (RBZ) Governor Dr John Mangudya said local banks last year improved their financial support to the productive sectors.

“Banking sector loans and advances increased from $3.69 billion as at 30 June 2017 to $3.80 billion as at 31 December 2017.

“Lending to the productive sectors constituted 73.64 percent of total sector loans as at 31 December 2017,” he said.

Last year, 18.60 percent of the loans advanced by banks went towards the consumptive purpose while 7.76 percent was advanced to other sectors, said the Central Bank boss.

Economic analysts said the shift towards lending to the productive sectors by banks could have been compelled by issues to do with corporate governance by individuals who own businesses.

“It could be that in the past individuals would borrow on behalf of their companies due to lack of corporate governance issues resulting in the loans advanced being skewed towards the individuals for consumptive purposes.

“However, now that there has been emphasis on adherence to good corporate governance practices, there is a decrease in the number of individuals borrowing on behalf of their companies,” said Zimbabwe National Chamber of Commerce (ZNCC) chief executive officer, Mr Christopher Mugaga.

Due to lack of adherence to good corporate governance in recent years, it has been noted that the country’s banking sector registered a significant growth in Non-Performing Loans (NPLs).

Against this background, RBZ in 2014 established the Zimbabwe Asset Management Company (Zamco), which started operating the following year with a view to harnessing the scourge of NPLs by buying out from the commercial banks their collaterised loan books.

By the end of 2017, NPLs had dropped to 7.08 percent from 20.5 percent in 2015, raising hopes that the financial services sector was becoming more stable.

As at December 31, 2017 Zamco had acquired NPLs amounting to $987 million enabling banks to clean up their balance sheets so that they are better able to support the economy through provision of credit.

Mr Mugaga also attributed the improved financial support to the productive sectors of the economy by banks to more prudential lending by banks.

“The banks have also started making headways in applying prudential lending realising that non-funded income was not sustainable compared to interest income. As a result, the bulk of their loans are now going towards the productive sectors of the economy,” he said.

Another economist Mr Peter Mhaka echoed similar sentiments adding that the productive sectors were bound to register significant growth with more financial support coming in from local banks.

Meanwhile, Dr Mangudya said the overall performance of the banking sector was satisfactory last year as reflected by the improvement in key risk and performance indicators.

During the period under review, banking sector total assets closed the year at $11.25 billion.

Other capitalisation and profitability indicators also reflected improved performance with the sector’s total deposits growing to $8.48 billion since 2009 when the country adopted a multi-currency system. — @okazunga.

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