Mishma Chakanyuka, Staff Writer 
ZIMBABWE’S banking sector is set to tread carefully on non-performing loans (NPLs) this year, in a bid to prevent a resurgence of escalating NPLs as the nation continues its dollarisation process, according to the Bankers Association of Zimbabwe (BAZ).
A surge in NPLs can debilitate the operations of financial institutions, as it increases the likelihood of borrowers defaulting. An NPL is a borrowed sum whose scheduled repayments have not been met by the debtor for a specified period, typically 90 or 180 days.
BAZ’s chief executive, Fanwell Mutogo, stated that the sector grappled with a surge in NPLs when the country initially adopted the dollar.
“We had issues with high non-performing loans previously. This time, we want to exercise caution, so we will limit our exposure,” said Mutogo.
Fitch Solutions recently cautioned that Zimbabwe’s ongoing currency instability could significantly jeopardise banks’ asset quality in 2024. The risk emanates from the inflationary effect on borrowers’ capacity to service their debts, which could potentially lead to a rise in NPLs.
Jane Morley, head of Sub-Saharan Africa Country Risk for Business Monitor International, noted that currency weakness directly affects a large portion of the loan book, as foreign currency loans constitute approximately two-thirds of total lending.
“This dynamic fuelled unprecedented loan growth in 2023, but it comes at the cost of higher NPL risks,” Morley said.
As a result, banks are expected to become more cautious in lending to riskier private-sector borrowers. Despite these challenges, BAZ anticipates a brighter 2024, bolstered by the relative stability observed in inflation and currency rates during the latter half of 2023.
Mutogo expressed optimism for the coming year, citing the positive trends in inflation and exchange rate management in 2023. However, he acknowledged potential challenges stemming from unforeseen economic disruptions and regulatory shifts.
Despite these challenges, Mutogo highlighted the significant growth in foreign currency deposits, which increased from around US$300 million in 2018 to US$16 billion by September 2023.
“This upward trend is encouraging, and assuming the current environment persists, we expect it to continue,” Mutogo said.
The Reserve Bank of Zimbabwe echoed this sentiment in its latest banking sector report, projecting continued resilience within the industry. The sector reported an aggregate profit of $4,67 trillion for the nine months ending September 30, 2023, compared to $341,28 billion in the same period of 2022.
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