NPLs significantly down, but at a cost to economic growth

23 Feb, 2021 - 02:02 0 Views
NPLs significantly down, but at a cost to economic growth An aerial view of the RBZ building in Harare.

eBusiness Weekly

Business Writer
Zimbabwe banks seem to have struck the right chord if the quality of their loan book for the year ended December 31, 2020 is anything to go by, but the reduced lending will result in sluggish economic growth.

The quality of the banking sector’s loan book was of major concern during the dollarisation era where non-performing loans (NPLs) ballooned to unsustainable levels that threatened the viability of a number of banks.

NPLs in the country reached a peak of 20,45 percent in 2014 with some banks such as ZB Bank and NMB among the worst performers with NPLs above the sector average.

The situation prompted the Reserve Bank of Zimbabwe to establish the Zimbabwe Asset Management Corporation (Private) Limited (ZAMCO) as part of holistic measures to deal with problem of rising non-performing loans (NPLs) in the banking sector.

This was in recognition of fact that that high NPLs invariably constrain banking institutions’ credit intermediation capacity thus, acting as a drag on economic growth.

Thus ZAMCO was set up with the specific mandate of efficiently resolving the non-performing loans of banking institutions in Zimbabwe through acquiring, restructuring and disposal of NPLs.

By end of 2019, ZAMCO had acquired $1,13 billion worth of bad debts from banks.

This left many banks with a clean bill of health and it seems banks are determined to keep NPLs at very negligiable levels as revealed in the 2021 Monetary Policy Statement.

Banking sector loan portfolio quality continued to improve as reflected by a decline in the non-performing loans (NPLs) to total loans ratio from 1.0 percent as at 30 June 2020 to 0.3 percent as at 31 December 2020, reads part of the MPS.

According to the central bank, this partly reflects the more than proportionate growth in total loans.

Total banking sector loans and advances increased 2.18 times from $37.8 billion as at 30 June 2020 to $82.4 billion as at 31 December 2020, largely attributed to the translation of foreign currency denominated loans.

However, banking sector financial intermediation remained subdued, as reflected by a loans to deposits ratio of 39.5 percent.

The RBZ said this was largely as a result of cautious lending approach adopted by some
banking institutions.

Lack of long term lending by banks is thus weighing down consumption and investment expenditure which are supposed to be the main drivers of the country’s economic output.

According to the RBZ analysis, the country has been experiencing negative growth on real credit; a situation which dampens investment and the country’s growth potential.

These developments underscore the need for measures that selectively redistribute liquidity through promoting longterm savings for long-term lending to the productive sector and also to households for consumption investments, the RBZ suggested.

“Promotion of long-term savings deposits and instruments will enhance access to longer term bank credit, which will boost household spending on consumer durables, and encourage
investment by households and businesses.

“In turn, increased economic activity should raise incomes and savings, along with a cycle of benefits in the economy” the RBZ said.

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