Source: The Herald – Breaking news.
Tapiwanashe Mangwiro
Senior Business Reporter
THE Reserve Bank of Zimbabwe (RBZ) says banks in the domestic financial sector have sound asset quality and capitalisation, putting them in good stead to support the economy.
According to the central bank’s latest quarterly report, on average, the capitalisation levels are double the required limits. Zimbabwe’s banking sector, the RBZ said, is characterised by well-capitalised banking institutions with an average capital adequacy ratio of 41,05 percent, the highest in two years.
The capital adequacy thresholds are well above the regulatory minimum of 12 percent.
Capital requirements are standardised regulations put in place for banks and other depository institutions to determine how much liquid capital must be held against a prescribed value of their assets.
Under the current regulations, all tier 1 banks comprising large indigenous commercial banks and foreign banks must have minimum capital equivalent to US$30 million.
Tier 2 commercial banks, merchant banks, development banks, finance, and discount houses are required to have minimum capital equivalent to US$20 million while deposit-taking institutions must have an equivalent of US$5 million.
Commenting on the report, banker Ray Mandeya said, “Good liquidity indicators as shown by an average liquidity ratio of 57,65 percent well above the stipulated benchmark of 30 percent.
“These factors are critical for banks to be able to underwrite significant business as well as to support the envisaged average economic growth of at around 6 percent.”
The RBZ said the ratio has, however, been on a declining trend from a high of 74,85 percent in June 2020 as banking institutions are increasing their lending, as reflected by the gradual increase in the loans to deposits ratio from 44,16 percent in March 2021 to 52,83 percent in September Read more on www.herald business.co.zw 2022.
Economist Dr Prosper Chitambara said the capitalisation levels helped to ensure stability in the financial sector while creating a base for sustainable financing.
“The capitalisation levels may also be a result of the banks’ hesitancy to lend for fear of a number of past uncertainties in our environment. However, the current appetite for US dollars has sustained and the activity is showing that banks are increasing lending,” he said.
Banks have been increasing their support to productive sectors as total banking sector loans and advances surged significantly to $1,97 trillion from $1,29 trillion as of December 31, 2022.
According to RBZ, the growth was largely attributed to the translation of foreign currency-denominated loans amounting to $1,01 trillion; in local currency terms, which constituted 78 percent of total banking sector loans.
The banking sector continued to support the productive sectors of the economy as evidenced by loans to the productive sectors constituting 73,57 percent of total loans as at March 31, 2023.
However, local banks have seen the percentage of non – performing loans (NPLs) increase to a three-year high in the quarter ending March 31, 2023.
Despite being within the RBZ threshold of 5 percent, the NPLs rose to 3,30 percent in March 2023, the highest level since December 2019.
Economist Tinevimbo Shava said, “The quality of loans remained satisfactory as reflected by the non-performing loans to total loans ratio of 3,30 percent, against the generally acceptable international threshold of 5 percent.”
According to Mr Shava, the banking sector loan quality was not adversely affected by credit stress associated with the tight liquidity stance, as initially envisaged and credit risk is expected to remain moderate in the outlook period.
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