Oliver Kazunga, Senior Business Reporter
THE banking sector remains safe and resilient despite the shocks caused by the Covid-19 pandemic, Finance and Economic Development Minister Professor Mthuli Ncube has said.
In the Mid-Term Budget Review Statement presented last week, Prof Ncube said in the context of the disruptive impact of the Covid-19 pandemic, Government has promulgated regulatory relief measures and muted the potential negative effects to the financial sector’s performance.
“The banking sector is safe and sound against the background of the disruptive impact of the Covid-19 pandemic.
“Government support and regulatory relief measures implemented thus far have cushioned the economy and muted the potential adverse impact to the banking sector’s performance. The measures have ensured continued orderly functioning of the financial market, continuous flow of credit and fostered financial sector stability,” he said.
The banking sector remained adequately capitalised, with aggregate core capital of $64,21 billion as at 31 March 2021, an increase of 20,74 percent, from $53,18 billion as at December 31 last year.
The sector’s average capital adequacy and tier one ratios of 30,04 percent and 19,43 percent, respectively, were above the regulatory minimum of 12 percent and eight percent, respectively.
Prof Ncube noted that banking institutions were making significant progress towards meeting the new minimum capital requirements which become effective from December 31, 2021.
“As at 31 March 2021, seven banking institutions had already met the new minimum capital requirements of their chosen capital segment, with four at least 50 percent while five reported core capital levels below 50 percent,” he said.
In terms of loans and advances by financial institutions, these increased by 27,69 percent from $82,41 billion as at 31 December 2020 to $105,23 billion at the end of March this year.
During the period under review, financial intermediation remained stable as reflected by loans to deposits ratio of 43,53 percent, said Prof Ncube.
He said the above position represents a conservative lending approach adopted by most banking institutions.
The banking industry’s support to the productive sectors stood at 84,75 percent total loans in March.
The Medium-Term Accommodation (MBA) facility support towards productive sectors, including Small to Medium Enterprises (SMEs), amounted to $4,13 billion since the inception of the facility with an additional $2,5 billion having been approved for financing the 2021 winter wheat programme.
“An additional $500 million has been set aside for SMEs that have been adversely affected by the Covid-19 pandemic.
“To ensure affordability of these facilities, the interest rate at which the productive sector access them from banking institutions have been capped at 10 percent above the borrowing rate in order to avail affordable long-term financing for production and the country’s industrialisation agenda,” said Prof Ncube.
He said the performance of loan portfolios of banking institutions was satisfactory as reflected by the average non-performing loans (NPLs) to total loans ratio which remained low at 0,36 percent as at 31 March 2021 against the international benchmark of five percent, reflecting sound credit risk management systems and internal controls.
In the outlook, Treasury expects that credit risk will remain low.
In terms of earnings performance, all banks were profitable during the period under review with profits for the first quarter ended March 31, 2021 amounting to $6,58 billion, an increase from $1,99 billion reported for the period ending 31 March last year.
“Most banking institutions are reviewing their business models with a thrust on digitisation hence the increased contribution of non-interest income to total income from service charges on digital platforms.”
Aggregate deposits amounted to $321,8 billion as at June 30, 2021, represented a 57,64 percent increase from $204,13 billion, reported last December.
“The Foreign Currency Accounts (FCA) deposits alone amounted to US$1,5 billion as at 30 June 2021, one of the highest FCA deposits ever recorded since Independence,” he said.
Meanwhile, the average prudential liquidity ratio for the banking sector remained largely stable at 68,36 percent, which was above the minimum regulatory requirement of 30 percent.
The high average prudential liquidity ratio largely reflects the conservative approach to lending by the sector.
“In recognition of the role played by savings and deposits in the economy and the need to support financial inclusion and development, Government has engaged the Bankers Association of Zimbabwe on the need to comply with Statutory Instrument 65A of 2020 regarding payment of interest on savings accounts,” he said. — @okazunga