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Business Writer
The banking sector has largely remained safe and resilient to the adverse shocks of Covid-19 with adequate core capital improving by 43,78 percent to $10,74 billion as at March 31 from $$7,47 billion at the end of last year.
Finance and Economic Development Minister Professor Mthuli Ncube said this while presenting the 2020 Mid-term fiscal policy statement in Parliament last Thursday.
“The banking sector remained largely safe and sound and generally resilient, despite the outbreak of the Covid-19 pandemic, that has given rise to economic uncertainties and heightened risks to overall banking sector soundness,” he said.
Mthuli said the Reserve Bank implemented various regulatory and supervisory measures to complement Government initiatives and to maintain financial stability.
“These measures were aimed at ensuring that banking institutions are able to continue to support the real economy, as well as minimising the impact of the Covid-19 pandemic on the sector,” he said.
Mthuli said the banking sector has also implemented various strategies to cushion its customers and maintain stability and these include moratoriums on repayment of loans and a freeze or reduction in service fees.
“The banking sector remained adequately capitalised, with aggregate core capital of $10,74 billion, as at 31 March 2020, representing a 43,78 percent increase, from $7,47 billion as at 31 December 2019,” he said.
The growth in capital was mainly attributed to capitalisation of retained earnings, with the major contributor being revaluation gains assets held by banking institutions.
As at March 31, 2020, all banking institutions were compliant with the prescribed minimum capital requirements.
A well-capitalised banking system is better poised to support the productive sectors of the economy, thus facilitating increased export generation and fiscal revenues,” said Prof Ncube.
The Reserve Bank continues to urge banking institutions to implement capital preservation strategies in light of the challenges in the macroeconomic environment.
Total banking sector deposits amounted to $47,05 billion as at 31 March 2020, representing an increase of 36,38 percent, from $34,50 billion reported as at December 31, 2019.
“Total banking sector deposits increased to $55,19 billion as at May 8, 2020.
“The increase in the deposit base was mainly attributable to revaluation of foreign currency denominated deposits, following the introduction of a floating exchange rate in February 2019.”
Demand deposits constituted 49,57 percent of total banking sector deposits, and the transitory is a hurdle to banking institutions’ capacity to meet productive sectors’ long-term funding needs to re-tool and embark on value adding production.
The average prudential liquidity ratio for the banking sector was 68,20 percent against the minimum regulatory requirement of 30 percent. The high average prudential liquidity ratio was partly due to a cautious lending approach
being adopted by banking institutions and preference for securities and investments.
Prof Ncube noted that the quality of the banking sector loan portfolio continued to improve, and this was reflected by a decline in the non-performing loans (NPLs) to total loans from 1,75 percent as at December 31, 2019 to 1,42 percent as at March 31, 2020.
“The improvement in the NPLs ratio was mainly driven by an increase in total banking sector loans and advances during the period under review,” he said.
Bongani Ndlovu