Zimbabwe’s banking sector vulnerabilities too high – World Bank

via Banking sector vulnerabilities too high — WB – The Zimbabwe Independent May 2, 2014 by Chris Muronzi

Banking sector vulnerabilities in Zimbabwe remain too high, worsened by macro-economic inconsistencies and low levels of confidence, a World Bank (WB) report says.

In its April economic report, the WB said non-performing loans are high at 15,9%, while liquidity conditions remain tight at 27,8 % as at December 2013.

“Solvency concerns especially in smaller banks also remain a drag in the periphery, making the Reserve Bank of Zimbabwe (RBZ) to intensify the monitoring of troubled banks. The RBZ floated treasury bills worth US$103 million in March 2014 to clear part of the US$1,35 billion RBZ debt taken over by government. The treasury bills will facilitate interbank lending, as they will be used as security,” the bank says.

“Growth in annual broad money edged up by 5,5% to reach US$4 billion in February 2014. Private sector credit growth inched up 1,5%, reaching US$3,6 billion, while loan to deposit ratio remains elevated at 90% in the first 2 months.”

The bank said while a strong easing of prices of tradables was leading deflationary pressures, the prices of domestic non-tradables further strengthened, amidst falling aggregate demand and weakening of the Rand.

CPI inflation closed 2013 at 0.3 and continued on a downward trend, turning negative (-0.5%) in February and slid further to -0.9%in March 2014.

The economy’s outlook remains cloudy, slowed down by downside risks emanating from lower international prices of minerals, vulnerabilities in the banking sector, policy inconsistences affecting investment, deflationary pressures, fiscal slippages, the bank says.

The WB notes 2014 growth projections will depend on how fast government moves to address macro-economic vulnerabilities and structural impediments to investment, international prices and the coherency of policy responses.

“Growth in 2014 is expected at 3%, dragged by the headwinds from the global economy, low investment and weak growth of the mining sector. The carry over effects of the 2013 slowdown are also likely to weigh down on 2014 growth,” the bank says.

The bank sees agriculture rebounding by 7,3% in 2014, largely supported by recovery in maize to 1,2 million tonnes. The first crop assessment estimates that 1,4 million hectares was planted to maize, an 18% increase from the previous season.

The WB says tobacco production will be in line with the positive results of the past season, but warned the increase in area planted was likely to be muted by weaker prices.

“Despite a reduction in hectarage, the cotton production is expected to register an improvement in 2014, benefiting from improved yields and favourable rains,” the bank says.

The WB sees subdued recovery in the mining sector, with a 3,3% growth in 2014, weighed down by lower international prices and subdued investment.

“Gold production recovered by 0,6 percent to reach 2168 kg in the first 2 months of 2014. Platinum production dropped by 7 percent, reaching 2058kg, while nickel surged to 3117 tonnes, buoyed by scaled up production by Bindura Nickel Corporation. Diamonds production is expected to reach 10 million carats in 2014-2015,” it adds.

On the manufacturing sector, the WB projects a marginal 1,4% in 2014, stifled by low investment, declining competitiveness pressures, and further tightening of credit conditions.

“Total revenue continues to underperform as it amounted to US$805 million, falling 8% short of target in the first 3 months of 2014.
Tax revenue fell 7,5% below expectations, sapped by underperformance of major taxes: income taxes (-6% especially companies), customs duties (-26%), excise duties (-9%), VAT (-19%). Non-tax revenue fell 11% below target to reach US$56 million. This revenue slide largely reflects economic slowdown and visible deflationary pressures,” it notes.