Biti warns of bank crisis

fears this could trigger a banking sector crisis.
On Tuesday, as he updated Zimbabwe’s economic performance for the first quarter, Minister Biti said 34 percent of bank loans had not been repaid.
He said he was also concerned over the level of loan-to-deposit ratio, which he said stood at 76 percent. He hinted the sector faced loan default risk.
This ratio becomes unsustainable in the face of the liquidity crisis prevailing and the high rate of defaulting loans. A loan-to-deposit ratio of up to 80 percent is acceptable in a liquid developing economy.
In this regard, Treasury has directed the Reserve Bank of Zimbabwe to correct the precarious situation before the bubble bursts.
But this comes on the back of strong calls by fiscal and monetary authorities last year that banks were reluctant to extend loans.
“The banking system remains vulnerable with weak capitalisation, raising non-performing loans and tight liquidity situation,” the minister said.
“Non-compliance to minimum capital adequacy threshold requirement by small banks is worsening vulnerabilities in the sector.”
Minister Biti said seven banking institutions were yet to meet the RBZ prescribed minimum capital requirements. There are 28 banking institutions.
Commercial banks were required to have a minimum capital of US$12,5 million by March last year, but to date a number are yet to comply.
Minister Biti’s concerns vindicate the warning by Bankers’ Association of Zimbabwe vice-president Mr George Guvamatanga last year in his address to the 41st Institute of Bankers of Zimbabwe winter school in Nyanga.
The Barclays Bank Zimbabwe managing director warned of a banking sector crisis. He said this was because the banks had gone on a “lending overdrive”.
He said without a credit rating bureau, the banks ran the risk of loaning to people and organisations buckling under credit from other lenders.
Mr Guvamatanga said following calls for banks to lend, a number of them were advancing loans without demanding adequate security.
Deposits reached US$2,36 billion in January, increasing to US$2,4 billion in February as loans increased from US$1,81 billion to US$1,88 billion, representing a loan deposit ratio of 76 per- cent.
Despite the growth in the deposits base, interest on savings at 1 percent has remained largely low, but interest on savings of up to three months have improved to between 9 percent and 12 per- cent.
But lending rates have remained unsustainably high, ranging between 15 percent and 30 percent with over 90 percent being short term.
Meanwhile, Minister Biti said the restructuring of the RBZ balance sheet was at an advanced stage, which would result in the transfer of non- core assets and liabilities to a special purpose vehicle.
This would also include verification of the central bank’s debt to establish what debt would be retired through proceeds from the sale of quasi-fiscal assets while the State would assume the balance.