Zimbabwe banks weather the storm

ZIMBABWE'S banking institutions remained profitable during the year ended December 2019, reporting net income of $6,4 billion, an improvement from $389,9 million reported during the corresponding period last year.

This is contained in the Reserve bank of Zimbabwe's (RbZ) 2019 annual report.

The increase, according to the report, was driven by revaluation gains on investment properties, translation gains on foreign currency balances, as well as commission from foreign exchange trading.

Non-interest income constituted 52,2% of total net income while interest income from loans constituted 10,7% of total income during the period under review.

The cost-to-income ratio for the sector improved from 70% in 2018 to 40% in 2019, largely due to increased efficiency arising from automation and digitisation of a number of banking processes.

Banking sector earnings performance, as measured by the average return on assets, declined from 20,61% to 8,99%, and average return on equity ratios improved from 30,23% to 31,98% as at December 31, 2019.

"Overall, the banking sector exhibited some resilience to a wide spectrum of risks on the back of adequate capitalisation, sustained earnings performance and satisfactory asset quality, notwithstanding the constraints in the operating environment," the report reads in part.

"The banking sector continued to play a critical role in the development trajectory of Zimbabwe.

"The composition of the banking sector, however, remained largely unchanged.

"The performance of the sector for the year under review was satisfactory."

The report notes that in the period under review, all banking institutions were compliant with regulatory capital requirements.

The sector had aggregate core capital amounting to $7,57 billion.

The average capital adequacy and tier 1 ratios of 39,56% and 27,87% against regulatory minima of 12% stood and 8%, respectively.

"The growth in capital was largely attributed to capitalisation of retained earnings. In order to bolster the resilience of banks and their ability to contribute to economic growth and development, banks are required to meet the new capital requirements effective December 31, 2021," the RBZ said.

The banking sector's lending support to households and the real estate sector increased to $12,63 billion, an improvement in intermediation from $4,09 billion in 2018.

The commercial banking sub-sector accounted for 83,35% of the total banking sector loans and advances, while the top five banking institutions accounted for 65,68% of the total sector loans, compared to 48,60% in 2018.

The quality of the banking sector loan portfolio improved during the period under review as reflected by the ratio of non-performing loans (NPLs) to total loans ratio of 1,8% in 2019, from 6,9% in 2018.

Households and the agriculture sector recorded the highest levels of NPLs constituting 29,9% and 28% of the total loans, respectively in 2019 largely attributed to high levels of over-borrowing among individuals and the poor agriculture season.

The improvement in the average NPLs ratio was largely attributed to a combination of growth in the loan book and a decline in the quantum of non-performing loans, from $283 million to $221,6 million during the period under review.

RBZ noted that the banking sector had benefited from an enhancement of the credit reference environment over the last few years, which now comprises a credit registry in the central bank and three credit bureaus.

The credit bureaus hold in excess of 13 million records among them, while the Credit Registry, which currently specialises in banking sector loan records, has over 1.5 million records.

Usage levels by both bank and non banking institutions continue to increase steadily.

Banking sector deposits continued on an upward trajectory in 2019, closing the year at $34,50 billion in 2019, up from $10,3 billion recorded in 2018.

The increase largely reflects revaluation of foreign currency-denominated deposits.