NPLs return to haunt banks

Source: NPLs return to haunt banks | Sunday Mail (Business)

Africa Moyo
Senior Business Reporter

RESERVE Bank of Zimbabwe Governor Dr John Mangudya says the banking sector’s asset quality has deteriorated as demonstrated by the surge in the average non-performing loans (NPLs) to total loans ratio during the period under review.

However, the overall banking sector remains “generally stable” as reflected by adequate capitalisation and an improved earnings performance for the period ended December 31, 2018.

Dr Mangudya said this in the 2019 Monetary Policy Statement pronounced last Wednesday.

Total loans and advances were US$4,22 billion last year compared to US$3,80 billion in 2017.

The jump in loans and advances last year, equally saw a rise in NPLs to 8,30 percent up from 7,08 percent in December 2017. The globally accepted NPLs benchmark is 5 percent and anything above that becomes worrisome.

But considering that the country’s financial services sector hit an NPLs level of 20,5 percent in 2015, market watchers say the current level is not too bad, if it is managed well.

A low NPLs level tends to raise great expectations that the financial services sector would be more stable.

Despite a jump in NPLs, the banking sector remains adequately capitalised, with an average tier 1 and capital adequacy ratios of 23,84 percent and 30,27 percent, respectively.

Dr Mangudya said the banking sector’s aggregate core capital increased by 15,32 percent from US$1,37 billion as at December 31, 2017 to US$1,58 billion as at December 31 last year largely due to organic capital growth.

He added that all banking institutions were compliant in terms of the prescribed minimum capital requirements.

Zimbabwe had 19 operating banking institutions as at December 31, 2018 comprised of 13 commercial banks, five building societies, one savings bank.

Other institutions under the RBZ supervision include credit-only-microfinance institutions (199), deposit taking MFIs (six) and two development finance institutions.

Given the challenging macroeconomic environment, Dr Mangudya rallied banking institutions “to implement capital preservation strategies”.

Banking sector deposits rise

Banking sector deposits were US$10,32 billion as at December 31 last year, up from US$8,48 billion by December 2017.

Dr Mangudya said the banking sector was predominantly funded by demand deposits, which accounted for 64,94 percent of total deposits as at December 31, 2018.

Time deposits were 22,89 percent; call deposits 1,25 percent; foreign deposits (foreign entity deposits) 1,91 percent; savings deposits 5,11 percent; foreign deposits (foreign lines) 2,27 percent and other deposits were1,63 percent.

Meanwhile, by December 31 last year, total Nostro FCA deposits amounted to US$673,81 million, representing 6,53 percent of total deposits.

The Nostro FCA depositors are predominantly constituted by corporate deposits amounting to US$654,77 million, representing 97,17 percent of total Nostro FCA deposits.

As at December 31 last year, the number of corporate RTGS FCA depositors was 214094 valued at US$8,67 billion, while the number of individual RTGS FCA depositors were above three million valued at US$894,54 million.

Of these, individual depositors — representing 95,98 percent — held deposit balances of less than US$1 000 each, with an average balance of US$80, accounting for a total US$213,42 million.

Corporate RTGS FCA depositors (1,884) holding balances in excess of US$500 000, constitute 83,64 percent (US$7,25 billion) of total corporate RTGS deposits of US$8,67 billion as at December 31 last year.

Dr Mangudya believes that going forward, the number of Nostro FCA depositors will increase, driven by increases in tobacco and mineral production, and increased financial inclusion.