Zimbabwe banking sector profits decline

Zimbabwe banking sector profits decline
Published: 23 June 2015
The Reserve Bank of Zimbabwe says the banking sector's capitalisation though largely in compliance with minimum capital requirements, remains under threat from losses being recorded by a few banking institutions and the high levels of non-performing loans.

According to the central bank's first quarter report, a total of 13 banking institutions were compliant with the regulatory minimum capital requirements while a similar number out of 18 reported profits. As a result of the losses from the five institutions the sector registered a decline in aggregate net profit to $4,02 million from $22,4 million in the comparable year ago period.

The report says the deterioration in aggregate net profit was largely attributed to loan impairment charges which increased to $40,18 million from $12,31 million last year and softening yields on loans, lack of critical mass to cover operating expenses, refinancing costs of liquidity challenges and adjustments to reasonable and responsible pricing.

"Credit risk remained high as evidenced by the average non-performing loans to total loans (NPL/TL) ratio which declined marginally to 15,19 percent as at March 31 2015, from 15,91 percent as at December 31 2014. The ratio is above the internationally acceptable benchmark of 5 percent."

Profitability indicators for the banking sector as measured by the average return on assets (ROA) and return on equity (ROE) deteriorated from 0,26 percent and 2,12 percent as at March 31 2014 to 0,08 percent and 0,40 percent as

at March 31 2015, respectively on the back

of subdued earnings in some banking institutions.

The major source of income for the banking sector in the quarter ended March 31 2015 was interest income, which constituted 62,34 percent of total income, largely from loans and advances and non-interest income accounting for 37,66 percent, largely comprised of fees and commissions.

Operating expenses for the sector amounted to $136,78 million for the quarter ended March 31 2015 and were largely composed of salaries and employment benefits which accounted for 47,14 percent of total operating costs.

Other non-interest expenses which including depreciation, deposit protection premiums and administration costs, constituted 47,3 percent of operating expenses.

Total banking sector loans and advances amounted to $4,06 billion as at March 31 2015, up from $4,01 billion as at December 31 2014. As at March 31 2015, commercial banks accounted for 79,02 percent of total banking sector loans and advances.

The top five banks had loans and advances amounting to $2,48 billion, which accounted for 61,15 percent of total banking sector loans and advances as at March 31 2015.

In the period, the distribution of credit remained largely unchanged from the previous quarter with three largest credit proportions in light and heavy industry, physical persons and agriculture, at 26,5 percent, 22,1 percent and 16,3 percent respectively.

Total banking sector deposits amounted to $5,29 billion as at March 31 2015 with demand deposits constituting 55,15 percent of total. Commercial banking sub-sector held 78,75 percent of total banking sector deposits.

"The top five banks, in terms of deposits, had deposits amounting to $2,61 billion as at March 31 2015, representing 62,88 percent of total banking sector deposits."

The banking sector average prudential liquidity ratio of 34,37 percent as at March 31 2015 was in compliance with the regulatory minimum of 30 percent, notwithstanding the general liquidity challenges in the economy.

The banking sector's net capital base increased to $957,02 million as at March 31 2015 from $926,57 million as at December 31 2014.

However, the sector's aggregate core capital base deteriorated from $811,20 million reported as at December 31 2014 to $801,58 million as at Q1.

The RBZ notes that the sector's exposure to market risk remained low.

"Under the current operating environment, the sector's exposure to interest rate risk was mainly in the banking book.

"Aggregate stress test results reflect strong resilience to market risk shocks for the banking system as a whole." 
- Wires
Tags: Banks,

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