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People queue outside a bank in Bulawayo in this file photo. The introduction of multiple currencies is expected to address such liquidity challenges

Oliver Kazunga Acting Business Editor
THE Reserve Bank of Zimbabwe (RBZ) says liquidity and credit risk remain the major challenges facing the financial services sector since the adoption of the multi-currency system in February 2009.In a quarterly banking sector report for the period ending September 30, 2014, the RBZ said the macro-economic constraints as well as institution-specific deficiencies also continued to affect the performance and condition of the banking institutions.

“Liquidity and credit risk remain the major challenges facing the banking sector. The average non-performing loans to total loans ratio was 20.45 percent as at September 30, 2014,” said the central bank.

Banking sector deposits increased to $4,96 billion as at September 30, 2014 from $1,36 billion by the end of 2009.

RBZ said despite the decline in the overall profit levels, the financial sector has been profitable.

“As at September 30, 2014, 13 out of 20 operating institutions reported profits.  The earnings capacity has been weighed down by rising level of non-performing loans.”

RBZ noted that economic performance remains fragile, on account of the various challenges the economy was facing, notably supply side bottlenecks, liquidity shortages, lack of long term financing, competition from cheap imports, company closures, and the slow pace of recovery in the advanced economies.

The government through the 2015 national budget has instituted a number of measures to address some of the challenges by recommending a continuum of policies that seek to boost economic activities.

The monetary authority said based on CAMELS rating framework, the overall performance of the banking sector was considered to be satisfactory as at September 30, 2014.

“The banking sector reported a net capital  base and core capital position of $913.00 million and $803.00million as at September 30, 2014 respectively.

“This represented an improvement from $893 million and $753.3 million, respectively, as at June 30, 2014.”

The increase in the capital position was largely attributed to profits recorded by some banking institutions during the quarter.

During the period under review, a total of 14 out of 20 operating banking institutions were in compliance with the prescribed minimum capital requirements.

The central bank said non-compliant banks were taking various measures to regularise their capital positions which were at different stages of implementation.

It said the average capital adequacy ratio of 18.20 percent for the period ended September 30, was above the minimum regulatory ratio of 12 percent.

Turning to the level of Non-Performing Loans (NPLs), RBZ said the figure had risen to 20,45 percent from 18,49 percent in June.

Total banking sector loans and advances amounted to $3,84 billion as at September 30.

NPLs in Zimbabwe have been a result of poor credit analysis process and lending culture that was not based on cash flows of the potential debtor.

Meanwhile, in an effort to address the challenge of NPLs, the monetary authorities in collaboration with the Ministry of Finance and Economic Development has established an asset management company, Zimbabwe Asset Management Company (ZAMCO) that will buy NPLs from financial institutions.