Source: Govt’s weak fiscal position affects banking sector – NewsDay Zimbabwe June 28, 2017
ZIMBABWE’s commercial banking sector, will from the second half of the year struggle due to lower withdrawal charges, the ongoing liquidity crisis and over exposure to the government’s weak fiscal position, a Business Monitor International (BMI) report has shown.
BY FIDELITY MHLANGA
According to BMI, while the sector’s profits remained robust in 2016, there was a real risk of insolvency for a number of banks over the coming quarters of the year.
“2017 heralds a challenging period for Zimbabwe’s commercial banking sector, as institutions struggle to navigate through lower withdrawal charges, an ongoing liquidity crisis and overexposure to the government’s weak fiscal position,” the report read.
The report noted that the bank’s profit will be squeezed by an anticipated increase in the stock of non-performing loans.
“Profits will be further squeezed by an anticipated increase in the stock of non-performing loans (NPLs). However, we have long been sceptical towards Zimbabwe Asset Management Corporation (Zamco)’s capacity to continue removing NPLs from banks’ balance sheets, which was confirmed in February 2017 when the vehicle announced it would not be making any further acquisitions,” the report said.
In 2016, banks recorded a net profit of $181,06 million, a 42 % jump from the previous year’s profit of $127, 47 million thanks to Zamco — a special vehicle created by the government which absorbed the commercial banking sector’s bad debts amounting to about $500 000.
BMI Research provides macroeconomic, industry and financial market analysis, covering 24 industries and 200 global markets. It was founded in 1984 as Business Monitor International.
The report noted that asset growth in the banking sector has been strong despite the threat of economic recession and declining credit, largely due to banks’ bond portfolios.
This BMI said, leaves banks highly exposed to the government’s weak fiscal position, although it is likely that they will reduce Treasury Bill (TB) exposure amid concerns over default.
“Aside from TB exposure, the banking sector is on more stable footing, with most institutions seeing non-performing loan (NPL) ratios declining towards the 5% target set by the Reserve Bank of Zimbabwe and reaching the 12% capital adequacy ratios. However, as a result they have become more cautious to lend and more aggressive to collect,” the report said.
The report notes that in the insurance sector, there will be some consolidation in each of the main segments which is likely to happen as a result of departures/closures of smaller local groups.
“The impact will be greatest in the fragmented non-life segment, which will continue to be dominated by sub-scale local groups focusing mainly on basic lines. In 2017, gross non-life premiums will grow at an annual rate of 6, 2% while the life market will grow 8, 9%, a trend that is set to continue with life insurance increasing its share of the market,” the report said.
The report said appetite for investment on the new market is likely to be low due to the country’s poor economic environment, adding that government’s debt securities were viewed with scepticism by investors who see the government as essentially bankrupt.
“At end-May 2017, the Zimbabwe Securities Exchange’s market capitalisation was $4,69bn, which was an increase of around 17% from end-2016. The debt market was relaunched in April 2017 after 16 years of dormancy, which will allow investors to diversify their portfolios and mitigate risk,” the report said.