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Oliver Kazunga, Senior Business Reporter
THE banking industry has adopted a cautious lending approach resulting in loans and advances to the private sector declining to $3.7 billion in the first six months of the year.
Finance and Economic Development Minister Patrick Chinamasa revealed in the mid-term fiscal policy that the cautious lending approach was a direct response to the disposal of Non-Performing Loans (NPLs) and the prevailing operating economic pressures.
“Loans advances declined from $4 billion as at 30 June 2015 to $3.7 billion as at 30 June 2016, largely as a result of cautious lending approach by banking institutions, in response to the operating environment and disposal of non-performing loans to Zimbabwe Asset Management Company (ZAMCO),” he said.
ZAMCO is a special purpose vehicle established by the Reserve Bank of Zimbabwe in 2014 before it started operating last year to buy out NPLs from commercial banks their collaterised loan book.
“The liquidity challenges I have alluded to have also affected the pattern of credit extension. Consequently, loans to deposit ratio was on the decline, with banks sitting on relatively more funding than what they have been previously lending,” said Minister Chinamasa.
Since 2013, the minister said, lending to individuals has predominated overall lending contributing the highest percentage at 29 percent.
This was not all consumptive as it included loans for agricultural and other productive purposes.
However, fears over job security following the spate of retrenchments since July 2015 have also seen some banks treading carefully in granting individual loans. The banks’ short-term liability structures continue to constrain banking institutions capacity for enhanced financial support to construction, communication and mining sectors, which require medium to long-term funding.
“An average prudential liquidity ratio of 49 percent as at end March 2016 was above the stipulated minimum regulatory requirement of 30 percent.
“Seventeen out of the 18 operating banks were compliant with the prudential liquidity ratio as at end March 2016,” he said.
The minister added that the high average prudential liquidity ratio was partly attributed to a cautious approach to lending by some banking institutions in a bid to contain NPLs and to enhance liquidity risk management.
“Banking institutions with temporary liquidity challenges can access the African Export Import Bank Trade Debt Backed Securities (AFTRADES) facility,” he said.
The AFTRADES facility was set up to lower the risk of borrowing among banks by transferring it to an external financial institution and thus encouraging confidence in lending among banks, thereby stabilising the financial sector.
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