eBusiness Weekly
Business Reporter
Banks need to be innovative to sidestep the likely impacts of the Covid-19 pandemic, if they are to become the main rallying point for funding during and post the coronavirus pandemic.
Treasury has already stated that the $18 billion Stimulus Package will be disbursed through normal banking channels.
The Reserve Bank of Zimbabwe has warned that for local financial institutions to effectively implement this mandate, they will need to put in place strategies to minimise the risks posed by the pandemic.
“The banking sector will continue to play a central role in supporting the economy during the crisis and in facilitating rapid and sustained recovery post Covid-19, the central bank said in its Banking Sector Report for the Quarter to March 31, 2020.
“The major risks faced by banking institutions as a result of the Covid-19 pandemic include higher credit losses, reduced income generation capacity and operational constraints of keeping employees safe and meeting customer expectations.
As a result, “banking institutions will need to rethink their business models to continue being profitable and relevant in the face of the pandemic,” said the RBZ.
According to Mckinsey, how effective a bank-supported economic recovery will be, however, depends on banks’ resilience and health. Losses from loan defaults and increases in risk-weighted assets will deplete banks’ capital.
“Banking executives must prepare for the next normal to be very different from that of the past ten years.
“In coming months and years, banks might pass into the “caution zone” and need to significantly change the actions they take to preserve and raise capital, and decisions about dividends and buybacks, compensation, and cost structures need to be re-examined.
“The level and type of support that banks are able to provide to the real economy would also come under scrutiny, given their tighter capital positions,” Mckinsey noted.
Meanwhile, for at least the first three months of the year, the local financial services sector showed improvement in its capacity to lend.
Figures from the central bank show that the quality of the banking sector loan portfolio continued to improve, as reflected by a decline in the non-performing loans (NPLs) to total loans ratio, from 1,75 percent as at December 31, 2019 to 1,42 percent as at March 31, 2020.
“The improvement is notwithstanding the marginal increase in the level of non-performing loans during the quarter from $221,62 million to $275,59 million,” said the RBZ.
“Against the backdrop of a challenging macroeconomic environment and the impact of the Covid-19 pandemic, banking institutions continue to institute a number of measures to improve the quality of their credit portfolios.”
In other key metrics, total banking sector deposits for the period under review amounted to $47, 05 billion, a 36,38 percent increase, from $34,50 billion reported as at December 31, 2019.
Notably, the aggregate core capital for the banking sector increased by 43,78 percent to $10, 74 billion as at March 31, 2020 from $7,47 billion as at December 31, 2019, attributable to capitalisation of retained earnings from translation gains and revaluation of properties. The sector’s total assets increased by 62, 91 percent, from $60,64 billion as at December 31, 2019 to $98,79 billion as at March 31, 2020 due to revaluation gains on investment properties and translation gains other foreign currency denominated assets.
