admin
Tapiwanashe Mangwiro Senior Business Reporter
Local banks have begun to warm up to the idea of lending as is seen by increased loans on their books and Inter-Horizon (IH) Securities analysts say the appetite to lend has gradually increased in the past 12 months.
In a Banking Sector Report, IH Security said, “Appetite for lending banks has been increasing gradually with funded income accounting for circa 40 percent of income in 2021 versus 21 percent in 2020 and loan to deposit ratio gaining 10,4 percentage points year on year.”
Development economist Dr Prosper Chitambara said, “It is a sign that the economy is actually growing, because the demand for credit and the willingness to lend is increasing. This means it is the growth of the financial sector as well.”
According to Dr. Chitambara this is a positive development because if the lending is towards the productive sectors of the economy it strengthens the productive base of the economy and thus growth and development in the country is enhanced.
Economic analyst Tafara Mtutu said, “Such a position is a welcome one as production is mostly financed by debt. Loans oil the economy and through this, we can achieve more funds to invest in different sectors of the economy.”
Another economist Enoch Rukarwa said the basic explanation is that increased lending implies increased investment which is increased gross domestic product (GDP) or income. Looking at it from an income point of view it means the more banks lend, the more people spend and companies get more revenue.
Increased foreign currency account (FCA) balances in the banking system and aid in the form of external credit lines have enabled USD denominated business for the sector and as such 65,9 percent of loans were foreign currency denominated to June 2022.
“In our view, by financial full year 2022 banks will experience a surge in interest incomes owing to repricing of rates on existing loans by the central bank,” the report read.
However, they believe that demand for new loans in local currency should be lower due to the current interest rate tariffs whilst consumer interest USD loans will likely remain elevated given relative affordability.
Reported non-performing loans (NPLs) for the sector have remained below the recommended thresholds by a significant margin, and IH Securities foresees higher downside with existing clients potentially unable to service debt at elevated interest rate levels.
This comes as the Reserve Bank of Zimbabwe in its mid-term monetary policy said NPLs saw a gradual uptick moving from 0,91 percent as at December 2021 to 1,50 percent in June 2022.
International lines of credit for commercial banks had gradually dried up due to high country risk coupled with a series of exits of foreign–owned banks.
However, the European Union through its lending arm, The European Investment Bank (EIB), has started actively engaging local banking institutions after a 22-year hiatus as part of interventions to support the African private sector during the pandemic.
In 2021, The European Investment Bank extended a €15 million loan facility to CABS to be drawn over 7 years.
Under similar circumstances, First Capital bank also received a credit line of €12,5 million whilst NMB was granted €12,5 million within the first half of 2022 from EIB and an additional US$10 million from the Eastern and Southern Trade and Development Bank (TDB) in October.
In this regard, IH Securities believes that traditional bank income sources will contribute higher in the coming financial reports due to increased lending appetite.
Online Reporter