Banks put brakes on lending

Enacy Mapakame Business Reporter

BANKS have put brakes on lending to curb further growth in bad loans, says Bankers Association of Zimbabwe president, Dr Charity Jinya. This comes as bank lending as a percentage of gross domestic product has plateaued at 26 percent over the last three years.“The slowdown in economic activity has negatively impacted the ability of banks to expand credit,” Dr Jinya told The Herald Business last week by email.

According to the Reserve Bank of Zimbabwe, credit to industry rose sharply between 2009 and 2012, rising from 8,4 percent to 28 percent relative to overall economic output.

Experts credit the growth to a boom in the Zimbabwean economy since dollarisation in 2009. But things have come to a head since 2012, with bad loans soaring to nearly 20 percent at some point, economic growth slowing and offshore lines of credit disappearing.

The central bank was forced to step in, setting up a firm — the Zimbabwe Asset Management Company — to tackle the burden of non-performing loans by acquiring those loans itself.

This has helped clean up the balance sheets of several banks, pulling down the ratio of bad loans in the sector to around 10 percent.

It is anticipated non-performing loans will further decline to 5 percent by December 2016. But the banks are unlikely to open their purses wider and deeper anytime soon.

“The difficult trading environment characterised by tight liquidity, job losses and closure of companies, requires banks to be cautious in their lending in order to preserve capital and safeguards depositor’s funds,” said Dr Jinya.

According to the RBZ, lending to individuals was the highest as at June 2016 accounting for 16,57 percent of the total lending portfolio.

Manufacturing and agriculture and are next at 15,38 percent and 15,05 percent respectively. Figures show that distribution, mining and services are also among to recipients of bank loans at 12,07 percent, 12,04 percent and 10,13 percent in that order.

Construction sector and the state received the least at 1,27 percent and 0,52 percent respectively.

Economists say there is need for a shift in lending trends from individual loans to more productive sectors of the economy such as mining, agriculture and manufacturing.

This is premised on the notion individual loans are mainly for consumptive purposes. However, with a boom in the informal sector, there is scope for lending to individuals as most informal traders and small to medium entrepreneurs also fall under the strata.