Banks closing their lending taps

Source: Banks closing their lending taps | The Financial Gazette October 13, 2016

THE average loan to deposit ratio for Zimbabwean banks decreased to 69,3 percent for the six month to June 30 from 80,6 percent during the same period last year as banks slowed down on lending due to the liquidity crisis.

Generally banks have been scaling back on advancing credit given the lower general aggregate demand in the economy, liquidity constraints and the Reserve Bank of Zimbabwe’s (RBZ) non-performing loans (NPL) target of five percent by December 2016.

Banks are unique businesses, not only as guarantors of deposits, but also as suppliers of capital without which an economy cannot function.
This balancing act is reflected in the value of a bank’s lending as a proportion of the money it has in deposits.

The loan-to-deposit ratio is a commonly used statistic for assessing a bank’s liquidity by dividing the bank’s total loans by its total deposits. This number is expressed as a percentage. If the ratio is too high, it means that the bank may not have enough liquidity to cover any unforeseen fund requirements, and conversely, if the ratio is too low, the bank may not be earning as much as it could be.
The extent of credit extension as at June 30 indicated that lending had been restricted as reflected by the average loan-to-deposit ratio of 69 percent.
However, the quest for growth in profit by banks had often been undertaken at the expense of sound lending practices. Since the economy was dollarsised in January 2009, the pendulum swung too far forcing the Reserve Bank to read the riot act on banks by capping their interest rates and to lower service charges.

The loan to deposit ratio figure of 69,3 percent does not include Steward Bank and the National Building Society (NBS).

Stewart Bank’s financial year is different from other banks whose interim period ends at June 30. NBS commenced operations on May 182016 and did not have enough of an operating period for comparative interim results.

“Infrastructure Development Bank of Zimbabwe’s (IDBZ) loan to deposit ratio was the highest at 150,9 percent as the bank had US$71 million worth of bonds and credit lines over and above customer deposits that were on lent for infrastructure project financing,” said Old Mutual Securities.

Agribank’s loan to deposit ratio at 145 percent was similarly high as the bank utilises agricultural bills to extend credit above and beyond its customer deposits.

The Loan to deposit ratio was significantly lower at 59,4 percent without IDBZ and Agribank.

The banking industry has adopted a cautious lending approach since the liquidity crisis worsened during the second half of 2014 resulting in loans and advances to the private sector declining to US$3,7 billion in the first six months of the year from US$4 billion last year.

In his mid-term fiscal policy, Finance and Economic Development Minister Patrick Chinamasa revealed that the cautious lending approach was a direct response to the disposal of NPLs and unstable economic environment.

Since 2013, Chinamasa said, lending to individuals had predominated overall lending contributing the highest percentage at 29 percent.

This was not all consumptive as it included loans for agricultural and other productive purposes.

The other bank’s loan to deposit ratio’s were ABCH 92 percent, NMB – 83 percent, ZB Bank -82 percent, Ecobank -70 percent, CABS – 69 percent, FBC Building society and FBC Bank – 64 percent anf MBCA – 60 percent.

ZB Bank’s loan to deposit ratio was 35 percent, while Standard Chartered was 39 percent. Stanbic and Barclays bank recorded 40 and 45 percent respectively with CBZ achieving 47 percent

Met-bank had the lowest loan to deposit ratio at 30 percent as the institution continues to weed out NPLs by severely cutting back on its advancing.

Commenting on the banks’ liquid assets less treasury instruments to deposit Ratio, Old Mutual Securities said it was concerned with Met-bank, CBZ and POSB’s liquidity positions given admission by treasury that defaults of treasury instruments are likely.

Met Bank was at -10 percent, with POSB also recording a negative 11 percent. CBZ recorded four percent.

“Given heightened credit risk, Met bank and POSB are particularly exposed to the risk of failing to meet their demand deposit calls,” said Old Mutual.

Stanbic bank did not disclose its Treasury bill holdings.