Banking sector profits jump to $181 million

THE banking sector in Zimbabwe closed year 2016 with $181 million profits, recording a 42 percent increase from $127 million in 2015, the central bank reported.

In his 2017 Monetary Policy Statement presented yesterday, Reserve Bank of Zimbabwe (RBZ) Governor, Dr John Mangudya, attributed the banking sector profitability to lower loss provisions.

"The banking sector remained profitable during the year ended December 31, 2016, with an aggregate net profit of $181,06 million, an increase of 42,36 percent from $127,47 million reported for the corresponding period in 2015.

"The increase translated to improved average return on assets and return on equity from 2.07 percent and 11,03 percent, to 2,26 percent and 12,64 percent, respectively," he said.

Despite persistent cash shortages that dominated the whole of last year, the apex bank said all operating banking institutions recorded profits during the period ended December 31, 2016.

"The increase in profitability was largely driven by lower loan loss provisions in line with improving asset quality, lower interest expenses as well as continued realignment of cost structures at most institutions.

"Interest income continued to be the major income driver constituting 58,40 percent of total income of $1,05 billion for the period ended December 31, 2016 while salaries and employment benefits dominated total costs for banking institutions as they accounted for 42,53 percent of total banking sector costs," said Dr Mangudya.

He said banks continue to implement various measures to enhance their earnings capacity through embracing technology in banking, which was more cost efficient.

Meanwhile, total banking deposits increased by 6.10 percent from $6,14 billion as at September 30, 2016, to $6,51 billion as at December 31, 2016.

During the period under review, the average prudential liquidity ratio for the banking sector was 61,91 percent as at December 31, 2016, above the stipulated minimum regulatory requirement of 30 percent.

Dr Mangudya said RBZ would continue with efforts to implement measures aimed at addressing the liquidity challenges experienced by the banking sector last year. He expressed optimism that the opening up of the tobacco floors during the first quarter of 2017 will boost the country's foreign exchange earnings and improve the liquidity status.

He said credit growth in the banking sector remained subdued during 2016 with banking sector loans and advances marginally increasing from $3,65 billion reported as at September 30, 2016 to $3,69 billion as at December 31, 2016.

During the period under review, the RBZ boss said the level of non-performing loans (NPLs) declined from a peak of 20.45 percent in the ratio of NPLs to total loans to 7,87 percent as at December 31, 2016. He attributed this to combined impact of the various policy measures instituted by the bank.

"These measures include enhanced credit management systems and collection efforts as well as disposal of qualifying NPLs to the Zimbabwe Asset Management Company, among other measures," he said.

"The level of NPLs is expected to continue trending downwards in response to a number of holistic NPL resolution policy measures by the Reserve Bank aimed at fostering responsible borrowing culture including the establishment of a Credit Registry."