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Dr John Mangudya

Harare Bureau
Banking sector profitability in the nine months to September declined 18 percent to $24.35 million from $29.93 million reported in the comparable period last year. According to the Reserve Bank of Zimbabwe Quarterly Report, the banking sector continues to be affected by institution specific deficiencies as well as broad macro-economic constraints.

A total of 13 banks out of the 20 operating banking institutions recorded profits. The losses recorded by the other seven banking institutions are attributed to high levels of non-performing loans and lack of critical mass to generate sufficient revenue to cover high operating expenses. This has seen the cost to income ratio closing the nine-month period at 96.63 percent from 95.77 percent in June.

In terms of operating expenses, salaries continue to dominate accounting for 42 percent of the sector total. Provisioning for loan losses accounted for 16 percent while other costs took up the remainder.

The level of non-performing loans has risen to 20.45 percent from 18.49 percent in June.

Generally NPLs in Zimbabwe have been a result of poor credit analysis processes, and lending culture which wasn’t based on cash-flows of the potential debtor. Analysts say banks were just spellbound by the balance sheets of borrowers that had nothing besides antiquated machinery. “An NPL ratio of 20 percent and still growing is testimony to such poor banking practices fraught with risk,” said market analyst Jerome Negonde.

However in an effort to address the problem of NPLs, the RBZ in collaboration with the Ministry of Finance, has established an asset management company, Zimbabwe Asset Management Company (ZAMCO) which will buy non-performing loans from financial institutions.

Profitability indicators for the banking sector, as measured by the average return on assets (ROA) and return on equity (ROE), deteriorated. ROA was down to 0.37 percent from 0.49 percent in June against the ideal 1.5 percent. ROE was at 2.54 percent from 2.72 percent in the June quarter.

In spite of the declining profitability, the RBZ however said the banking sector remained generally stable.

Majority of banking institutions had capital which was in compliance with the minimum capital requirements.  The non-compliant banks are instituting various measures towards compliance.

Banking sector deposits remained largely stable at $4.96 billion over the two quarters (June and September). Total banking sector loans and advances amounted to $3.84 billion, as at September 30.

The household sector borrowed 21 percent compared to 77 percent by corporations and 2 percent by central government and state enterprises.

Total assets had grown to $7.11 billion from $6.90 billion in the June quarter.