Banking sector defies Covid-19 impact to maintain solid footing

Governor of the Reserve Bank of Zimbabwe, John Mangudya, speaks during his presentation of the monetary policy in Harare, on October 1, 2018. (Photo by Jekesai NJIKIZANA / AFP)

ZIMBABWE’S banking sector has managed to maintain a sound footing evidenced by a total core capital increase to ZWL$40,85 billion at the end of last year from ZWL$20,99 billion as at June 30.

Growth was mainly attributed to retained earnings increase, bolstered by revaluation gains from foreign exchange denominated assets and investment properties.

Despite the disruptive impact of Covid-19 on different sectors of the economy, the banking sector has demonstrated resilience to various shocks, reflected by the satisfactory performance last year, Reserve Bank of Zimbabwe (RBZ) Governor, Dr John Mangudya, said.

The Apex Bank chief revealed this in his 2021 Monetary Policy Statement, which was issued last Thursday.

“The performance of the banking sector was satisfactory during the year ended 31 December 2020.

“As at 31 December 2020, total banking sector core capital of ZW$40,85 billion, reflected an increase of 94,08 percent, from ZW$20,99 billion as at 30 June 2020,” he said.

Dr Mangudya said capital positions remain strong with the banking sector average capital adequacy and tier 1 ratios of 34,6 percent and 22,7 percent as at December 31, 2020, were above the regulatory minimum of 12 percent and eight percent, respectively.

“All banking institutions complied with the minimum regulatory capital adequacy and tier 1 ratios,” he said.

As at December 31, 2020, the country had a total of 19 banking institutions comprising 13 commercial banks, five building societies, and one savings bank (People’s Own Savings Bank).

Other operational institutions under the supervision of RBZ included 209 microfinance institutions (credit-only), eight deposit-taking, and two developmental financial institutions namely the Infrastructure Development Bank of Zimbabwe and the Small and Medium Development Corporation.

Dr Mangudya said following extension of the deadline for banking institutions to comply with the new minimum capital levels effective 31 December 2021, all banks submitted updates of their capitalisation plans as at 31
December 2020.

“Banking institutions have registered significant progress towards meeting the new capital requirements. Total banking sector deposits increased by 114,5 percent from ZWL$97,40 billion reported as at 30 June 2020, to ZWL$208,9 billion as at 31 December 2020,” he said.

The deposits were made up of ZWL$125,3 billion (60 percent) in foreign currency and ZWL$83,5 billion (40 percent) in local currency.

The increase in total deposits was mainly attributable to revaluation of foreign currency denominated-deposits.

During the year under review, Dr Mangudya said the commercial banking sub-sector deposits amounted to ZWL$189,8 billion, which accounted for 91 percent of the banks’ total deposits.

The average prudential liquidity ratio for the banking sector remained high at 73,1 percent reflecting in part, the cautious approach to lending by most institutions, especially in foreign currency.

“As at 31 December 2020, banking sector total assets amounted to ZWL$349,59 billion and largely comprised loans and advances, balances with the central bank and balances with foreign institutions, which constituted 20,4 percent, 16,9 percent and 14,4 percent respectively,” said the RBZ boss.

Total banking sector loans and advances increased from ZWL$37,8 billion as at June 30, 2020 to ZWL$82,4 billion as at 31 December 2020, largely attributed to the translation of foreign currency denominated-loans.

Loans to productive sectors of the economy constituted 84,8 percent of total banking sector loans, and 14,75 percent was for consumptive purposes.

Dr Mangudya said the banking sector loan portfolio quality has continued to improve as reflected by a decline in the non-performing loans (NPLs) to total loans ratio from one percent as at 30 June 2020 to 0,3 percent by the end of the year under review, partly reflecting the more than proportionate growth in total loans.

The banking sector financial intermediation also remained subdued, as reflected by a loans to deposits ratio of 39,5 percent, largely as a result of cautious lending approach adopted by some banks. —chronicle


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