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Senior Business Reporter
ECONOMIC commentators say the performance of the banking sector in the first quarter was satisfactory given the prevailing challenges the country is facing.
The Reserve Bank of Zimbabwe, in its banking sector performance for the quarter ending March 31, 2014, said the financial services industry had generally remained stable.

It said the operating environment was characterised by transitory deposits, limited inter-bank trading, general market illiquidity and limited lender of last resort function.

“The prevailing macro-economic environment translated into low capitalisation of banking institutions, high cost of funding, limited credit creation, liquidity constraints and rising non-performing loans. Credit risk remains one of the most significant challenges facing the banking sector.

“A number of banking institutions are compliant with the minimum capital requirements. The remaining non-compliant banks are instituting various measures towards compliance. The banking sector was generally profitable, with 16 out of 21 operating institutions (including the savings bank), recording profits for the quarter ended March 31, 2014,” said the Reserve Bank in the report.

During the period, deposits amounted to $4,82 billion while loans and advances were $3,64 billion, translating into loans to deposits ratio of 78,03 percent.

Banks’ lending portfolio continue to be skewed towards consumptive lending. Total loans as at December 31, 2013 stood at $3,08 billion and by the end of the first quarter the figure increased to $3,6 billion.

Total deposits marginally improved to $4,89 billion as of March 31, 2014 from $4,73 billion by December 2013.

Net profit in the banking industry improved significantly during the period under review to $20,47 million from $4,46 million as of December last year.

“When the Reserve Bank says the performance of the banking sector is “satisfactory” that is in relation to the prevailing economic environment. Otherwise under normal circumstances in my view it may not be described that way,” said an economic commentator, Trust Chikohora.

He said it was commendable that bank deposits were picking up as that would assist the institutions to be in a sound financial position and lend.

“However, one has to analyse the deposits; there are transitory deposits based on salaries thus it cannot be interpreted that the liquidity crisis has eased,” added Chikohora.

The net capital base for banking institutions increased to $909 million during the period under review from $706 million.

Chikohora said it was a positive development that the net capital base was improving in line with the $100 million minimum capital requirement which is effective by 2020.

By the end of the first quarter, 14 of the 20 operating banking institutions were in compliance with the prescribed minimum capital requirements.

This, he said, shows that banks were conscious of increasing their capital levels.

Only one financial institution has so far met the $100 million minimum capitalisation level.

Economist Innocent Masauti said most of the banks were on a good footing in terms of their performance although a few were struggling.

The struggling financial institutions, he said, were taking corrective measures under the supervision of the monetary authorities.

“The rate at which banks have been lending has increased although it has been for consumptive purposes. Deposits have increased even though they are not balanced between small and large banks,” Masauti said.

“The fact that most banks met the deadline in the first quarter to report their financials show that the banks are doing well. A majority did not report negative earnings.”

He said the performance of the banking industry was generally showing signs of improvement although the economy was depressed.

“Deposits and capital adequacy have also been improving but the only challenge is that economy wise, it has not been improving and that will also affect the growth trajectory of the financial service sector going forward,” said Masauti.

Another analyst, Peter Mhaka, said in relation to the prevailing economic climate, the general performance of the banking industry was good.

“For example, most of the banks have been able to pay depositors and that reflects that the institutions are doing well although there are challenges in the economy,” he said.

Mhaka said a number of institutions were recapitalising through off-shore funding as well as embarking on mergers to consolidate their financial base to improve confidence in the sector.