ZIMBABWE’s banking sector is heavily invested in foreign currency-denominated loans, which account for 88,88 percent of total loans and advances, reaching ZiG27,45 billion by mid-2024, according to recent data.
The Reserve Bank of Zimbabwe (RBZ) Banking Sector Industry Report for the quarter ending June 30, 2024, states that banks have remained committed to funding productive sectors critical to economic growth, including manufacturing, agriculture, and mining.
The Non-Performing Loans (NPL) ratio is reported at 2,02 percent, down slightly from 2,17 percent as of March 31, 2024, indicating “strong credit risk management” within the sector.
“The reported banking sector average NPL ratio was within the Bank’s risk appetite and internationally acceptable threshold of five percent,” the RBZ noted.
This disciplined approach to loan approvals minimises exposure to defaults but may limit credit access for smaller or newer businesses.
Despite the sector’s liquidity, the loan-to-deposit ratio is relatively low at 52,51 percent, pointing to banks’ cautious lending approach amid ongoing economic uncertainties.
Banks reported a capital adequacy ratio averaging 46,15 percent, well above the required minimum of 12 percent, and a Tier 1 ratio of 40,13 percent. As of June 30, 2024, total core capital for the banking sector stood at ZiG14,02 billion.
“In US$ terms, the banking sector aggregate core capital increased from equivalent US$912,27 million as at March 31, 2024 to US$1,02 billion as at June 30, 2024, mainly attributed to organic growth,” the report reads.
“Retained earnings for most banking institutions were largely driven by revaluation gains on investment properties and translation gains from foreign currency-denominated assets.”
According to the RBZ, all banking institutions reported profits, with aggregate profits amounting to ZiG10,42 billion.
“The banking sector income largely emanated from non-interest income, which accounted for 87.57 percent of total income,” the RBZ noted. Key sources of non-interest income included net gains from foreign currency asset revaluations and investment property revaluations.
“However, RBZ expressed concerns, adding, “Heavy reliance on non-funded income is, however, considered unsustainable.”
Looking ahead, the RBZ’s outlook for the sector remains positive.
“The banking sector is expected to maintain strong financial performance and remain stable, playing its key financial intermediation role in providing the much-needed productive sector support.”