via Banks lose US$10,5m in six months | The Financial Gazette – Zimbabwe News 20 Nov 2014 by Shame Makoshori
THE banking sector shaved more than US$10 million in post tax profits during the first half of 2014 as players battled to contain an escalating crisis highlighted by bank failures, shrinking margins and economic shrinkage. Government has revised 2014 gross domestic product (GDP) growth targets to 3,1 percent, from an initial 6,1 percent.
And across all sectors of the country’s tottering economy, the trading environment has further deteriorated, with nearly all companies struggling to stay afloat due to depressed demand and the inability by cash-strapped customers to pay for goods and services.
Banks saw aggregate Net Interest Margins retreat to 2,9 percent during the first six months of the year, from 3,17 percent during the same period last year, as the sector responded to surging net interest expenses against declining interest income, according to researchers at MMC Capital.
Non-performing loans, which have emerged as the biggest threat to banking sector stability, climbed to US$925 million against a US$5 billion deposit base, from about US$750 million last year. The spike in bad loans, some of which became toxic due to an erosion of value for collateral assets, confirmed government’s fears that industrial bailout packages have been abused.
A US$40 million industrial package that was meant to bail out distressed companies has been mired in controversy amid revelations around October by a Cabinet that the Distressed Industries and Marginalised Areas Fund was abused, with executives expending it on expensive cars while industries collapsed.
Industry and Commerce Deputy Minister, Chiratidzo Mabuwa claimed that millions more were diverted into servicing already existing loans. “Firms benefitted, but I am yet to understand if they repaid. The monies went into servicing overdrafts and purchasing expensive cars. They just simply did not pay. They are still being chased,” she said.
Banks in Zimbabwe are among the most expensive to run, chalking an average cost to income ratio of 75 percent. But there are fears much of this goes towards sustaining lavish lifestyles of executives. MMC Capital’s report indicated how the tables continue to turn against Zimbabwean banks, even as deposits marginally increased to US$4,96 billion during the first half of 2014, from US$4,73 billion as at December 31, 2013.
“Total profit after tax for the reporting banks amounted to US$41,64 million for the half-year ended June 30, 2014 relative to US$52,13 million in the same period last year,” MMC Capital said.
“A total of 12 banks recorded profits while five banks posted losses for the half-year ended 30 June 2014. The losses that were recorded by the few banking institutions were mainly attributable to high levels of non-performing loans, lack of critical mass in revenue generation to cover high operating expenses and the deliberate strategy by some banks to clean up bad loan books through aggressive provisioning,” the report added.
“In the period under review, the top quartile banks (Stanbic, CABS, CBZ and BancABC) contributed about 76,42 percent to the earnings base (profit after tax) compared to 65,24 percent in the HY (first half of) 2013.”
MMC said the Zimbabwean banking landscape would remain bleak in the face of weak investor confidence and low incomes growth. “The economic outlook remains fragile and uncertain as the national savings rate sustains a downward trajectory,” the report said.
“Liability growth will likely remain a challenge as low incomes growth and weak investor confidence will continue to militate against deposit mobilisation from the unbanked population. In the face of the challenging economic conditions and increasing cost of doing business, the debt repayment capacity of borrowers remains constrained. The ever rising level of non-performing loans continues to be an albatross around the banking sector’s neck, hence further dampening the risk appetite of banks. The increasing allocation of loans to individuals poses a further cause for concern as these crowds out the productive sectors of the economy.”
The report added: “The consumptive nature of individual loans does not bode well for economic recovery. In order to foster positive economic recovery, more loans should be advanced to the productive sectors of the economy.”