APPETITE for foreign currency-denominated loans increased during the first six months of the year, constituting nearly 70% of loans advanced by Zimbabwe’s banking sector as the economy switches back to dollarisation, a central bank report has shown.
Astronomically high inflation has weakened the buying power of the Zimbabwe dollar, forcing business to charge goods and services in hard currency.
According to the Monetary Policy Statement (MPS), the banking sector recorded unaudited aggregate profits of ZW$181.25 billion for the half-year ended 30 June 2022, a 12-fold increase from aggregate profits of ZW$15.09 billion reported in the corresponding period in 2021.
“As at 30 June 2022, foreign currency-denominated loans constituted 65.87% of total banking sector loans, an increase from 36.87% reported as at 31 December 2021. 77,” the MPS reads.
“Growth in banking sector income was largely spurred by non-interest income, which constituted 79.03% of total income [2021: 51.81%]. Non-interest income comprised mainly revaluation gains from investment properties (25.77%), fees and commissions (21.47%), as well as translation gains on foreign currency-denominated assets (20.38%).”
Aggregate banking sector loans and advances, according to central bank figures, increased 2.64 times from ZW$229.94 billion as at 31 December 2021 to ZW$603.14 billion as at 30 June 2022, largely attributed to the translation of foreign currency-denominated loans.
During the half year to 30 June 2022, interest income from loans and advances contributed 18.22% compared to 40.96% of the total income in June 2021.
“During the period under review, financial intermediation as measured by the loan-to-deposit ratio, improved from 48.27% recorded as at 31 December 2021 to 53.69% as at 30 June 2022. The banking sector continued to support the productive sectors of the economy as evidenced by loans to the productive sectors constituting 76.29% of total loans as at 30 June 2022, the report reads.
“Banking sector asset quality remained satisfactory. As at 30 June 2022, the average non-performing loans (NPLs)-to-total-loans ratio for the banking sector was 1.50%, against the generally acceptable international threshold of 5%.”
The banking sector, according to Reserve Bank of Zimbabwe governor John Mangudya, remained safe and sound with demonstrable capacity for increased support for the recovery of the economy, notwithstanding the challenges in the operating environment.
As at 30 June 2022, the banking sector comprised 13 commercial banks, five (5) building societies, and one (1) savings bank. In addition, there were 183 credit-only microfinance institutions, eight (8) licensed deposit-taking microfinance institutions and four development financial institutions under the purview of the central bank.