‘Banks have capacity to withstand shock’
The Reserve Bank of Zimbabwe (RBZ) has reaffirmed the strength of the banking sector, highlighting its ample capital and liquidity reserves to weather economic shocks.
The bank also noted that profitability, asset quality, and liquidity metrics remain robust and stable.
In his Mid-Term Monetary Policy Statement, governor Dr John Mushayavanhu emphasised the sector’s resilience in the face of a dynamic operating environment while assuring continued vigilance against emerging and potential risks to the banking sector.
He said the proactive approach was meant to safeguard and maintain the gains achieved through monetary and fiscal measures.
“The bank remains vigilant against emerging and potential risks to the banking sector to preserve and maintain the gains from the monetary and fiscal measures,” he said.
“In that regard, the bank is closely monitoring one banking institution and three deposit-taking microfinance institutions that are operating under a corrective order to deal with the identified weaknesses.”
Dr Mushayavanhu reported that the banking sector maintained a robust capital position as of June 30, 2024.
He said the strong capital base reflected an adequate buffer to absorb potential losses, ensuring the sector’s ability to effectively fulfill its critical financial intermediation role.
“All banking institutions reported capital ratios that complied with the prescribed minimum capital adequacy ratio of 12 percent and tier 1 ratio of 8 percent,” he said.
While the high capitalisation ratios demonstrate solvency and compliance with minimum capital requirements, Dr Mushayavanhu noted that there is still room for improving the efficient use of capital.
As of June 30, 2024, aggregate core capital amounted to ZG14.02 billion. Notably, 15 out of 18 banking institutions exceeded the required core capital levels.
“The three non-compliant institutions continue to institute various measures to ensure compliance, and banking institutions are encouraged to continue building and maintaining solid capital positions as strong capitalisation improves the sector’s resilience to shocks,” he said.
In the period to June 3, 2024, total banking sector assets amounted to ZiG77,55 billion, and the asset composition was skewed towards loans and advances, constituting 32,25 percent, reflecting the banking sector’s intermediary role, while securities and investments accounted for 14,01 percent of total banking sector assets.
As of June 30, 2024, banking sector asset quality metrics remained satisfactory, as reflected by low levels of delinquency with an aggregate non-performing loan to total loans ratio (NPL) of 2,02 percent against the internationally acceptable threshold of 5 percent, said Dr Mushayavanhu.
The ratio marginally improved from 2,17 percent as of March 31, 2024, largely reflecting the implementation of sound credit risk management systems and strong internal controls by banking institutions.
The banking sector also remained profitable, with all banking institutions reporting aggregate profits of ZiG10,42 billion for the half-year period, with sector income largely emanating from non-interest income, which accounted for 87,57 percent of total income.
Dr Mushayavanhu said reliance on non-funded income compromises the quality and sustainability of earnings.
In other banking sector developments, Dr Mushayavanhu said cognisant of the need for fair and affordable bank charges, the Reserve Bank continues to actively engage banking institutions to ensure affordable and accessible banking services, to promote financial inclusion, and as part of market conduct supervision.
Furthermore, he said the banking institutions and deposit-taking microfinance institutions were directed to exempt individual accounts maintaining a daily balance of US$100 or less or equivalent in local currency for a period of up to 30 days from monthly maintenance or service fees.
Regarding refinement of the Non-Negotiable Certificates of Deposits (NNCDs) for outstanding export surrender and auction backlog obligations, RBZ has issued tradable Government bonds to companies owed from the forex auction, replacing the previously planned Non-Negotiable Certificates of Deposit, which faced resistance from firms.
-herald
