NPLs spike fear over Covid-19

23 Oct, 2020 - 11:10 0 Views
NPLs spike fear over Covid-19 Cosmas Kanhai

eBusiness Weekly

Golden Sibanda

Fears abound that the negative impact of the global pandemic on firms and households, which severely affected operations and incomes, could compromise the quality of some banks’ loan portfolios, a sector performance review report from the central bank reveals.

A high non-performing loans (NPLs) ratio normally affects banks’ appetite to extend loans to commerce and productive sectors, a development that has serious potential negative effect on the domestic economy.

Notably too, banking sector banks’ intermediation was subdued in the period to June, as reflected by the loans to deposits ratio of 37,71 percent, due to cautious lending approach adopted by some banking institutions.

However, the report says the proportion of the once troublesome NPLs declined from 1,42 to 1,03 percent in the quarter to June 2020, signifying that the quality of the banking sector loan portfolio has continued to improve, the latest sector survey report shows.

The improvement in the NPLs ratio was mainly driven by an increase in total banking sector loans and advances during the period under review, from $19,42 billion to $37,77 billion against the increase in the stock of NPLs from $275,59 million to $390,87 million. The Reserve Bank of Zimbabwe (RBZ) said in its June sector report that the growth in NPLs was mainly driven by exchange rate movements on a few non-performing loans denominated in foreign currency at some banking institutions.

“The financial distress on some firms and households from the disruptive effects of the pandemic could impact on the quality of some banks’ loan portfolio,” the central bank said in the report.

The Zimbabwe Asset Management Company (ZAMCO), recently said it had managed to eliminate the potentially hazardous systemic risk from the banking sector after taking over $1,1 billion worth NPLs, giving a number of debt ridden firms a new slate to make a fresh start.

ZAMCO chief executive, Cosmas Kanhai, said in an interview after it assumed bad debts, the NPLs rate among banks dropped from a peak of 20 percent to well below 5 percent, which is in line with the global trends.

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