Banks increase lending to productive sectors in FY14, limit exposure to individuals – report

Banks increase lending to productive sectors in FY14, limit exposure to individuals – report

HARARE, April 19 (The Source) – Zimbabwe’s banking sector has increased its lending to key economic sectors after reducing its exposure to individuals now seen as high risk because of company closures and rising non-performing loans, a report by an advisory and brokerage firm has shown.

Official data shows that 4,600 companies closed shop between 2011 and October last year, with nearly 64,000 workers losing their jobs while the central bank reported that retrenchments quickened by nearly 40 percent in 2014 as business closures accelerated.

Faced with mounting bad loans, which rose to nearly 16 percent last December from under five percent at dollarisation in 2009, local financial institutions have taken a cautious approach in lending, MMC Capital said in its latest report covering banks which released results for the full-year to December 2014.

“There was an increase in the distribution of loans and advances to key sectors of the economy such as manufacturing and agriculture whilst exposure to individuals has decreased from 25 percent in 2013 to approximately 21 percent in the period under review,” said MMC.

“For the full year period ended 31 December 2014, overall banking sector’s Loan to Deposit Ratio (LDR) decreased to 72 percent from 73 percent last year (for reporting banks). This drop entails that loans and advances are growing at a slower rate than deposits as a result of increased lending conservatism by the banks in Zimbabwe.”

The report which covered 11 commercial banks, three building societies and one savings bank shows that CBZ remained the largest banking institution in Zimbabwe by assets. It has an asset base of $1,52 billion, nearly double the size of its nearest competitor, the Central African Building Society (CABS) which has a balance sheet size of $850 million.

Total banking deposits, at $5,1 billion as at 31 December 2014, were eight higher than the prior year.

Government and the World Bank have projected a 3,2 percent economic growth for the year, led by mining, agriculture and tourism, although mineral prices have remained bearish.

MMC noted that the economic environment remains tense, with credit expansion inhibited by the obtaining liquidity challenges.

“The ever increasing non-performing loans will likely result in banks being more cautious in their lending approach this year relative to the prior year. We are of the view that, there will be less impairment charges this year following the massive ‘book cleaning’ which happened last year when almost every bank chose to increase their bad debts allowances,” it said.

“Some of the non-performing loans dated as far as 2009. This will likely have a positive impact on profitability this year, though marginal.”