NPLs hit three-year high

05 Aug, 2022 - 00:08 0 Views
NPLs hit three-year high Prof Mthuli Ncube

eBusiness Weekly

Tapiwanashe Mangwiro

Zimbabwe has seen its percentage of non – performing loans (NPLs) rise to a three year high in the quarter ending March 31, 2022. This was revealed by the Minister of Finance and Economic Development, Mthuli Ncube, during his mid-term budget review last week.

Despite being within the Reserve Bank of Zimbabwe (RBZ) threshold of 5 percent, the NPLs rose from 0,94 percent to 1,57 percent, the highest level since December 2019.

Mthuli said; “The quality of loans remained satisfactory as reflected by the non-performing loans to total loans ratio of 1,8 percent as at March 31, 2022, against the generally acceptable international threshold of 5 percent.”

According to the minister, the banking sector loan quality was not adversely affected by credit stress associated with the Covid-19 pandemic, as initially envisaged and credit risk is expected to remain moderate in the outlook period.

Economists believe the rise in NPLs is attributed to the increase in the cost of borrowing yet seeing reduced aggregate demand rendering them unable to repay loans on time. Eddie Cross,an economist, said this is what is called collateral damage in the business world because every policy has got an effect.

“It’s a no brainer that we have an increase of NPLs when the interest rates have been increased in the prior period and the current period under review. Some companies begin to fail to cover the interest from profits and begin to default on payments,” Cross said.

However, Bankers Association of Zimbabwe (BAZ), president Fanuel Mutogo noted; “It is too early to say interest rates are the reason for this rise in non-performing loans. It is a development which is normal in a banking environment that is why we have a threshold of 5 percent.”

Economist Tinevimbo Shava said; “There are fresh fears that the interest rates are creating a new wave of non-performing loans and this has been confirmed by the statistics from the apex bank. This issue hinges on the fact that the 200 percent interest rate which was done by the RBZ was applicable to existing loans.”

Despite the increase in NPLs, the banking sector loans and advances increased from $229,9 billion as at December 31, 2021 to $320,4 billion as at March 31, 2022.

The growth was largely attributed to the conversion of foreign currency denominated loans equivalent to $142,3 billion, constituting 44,4 percent of total banking sector loans.

Mthuli added that; “As at May 27, 2022, the total loans and advances had significantly increased to $513,1 billion.”

The level of banking sector financial intermediation improved as reflected by the average loans to deposits ratio of 55 percent compared to 48,3 percent as at December 31, 2021. The improvement in the level of intermediation is largely attributed to the increase in foreign currency denominated loans.

The banking sector continued to support the productive sectors of the economy, as reflected by the ratio of loans to productive sectors to total loans of 77,7 percent.

Total deposits continued on an upward trajectory, recording a 22,2 percent increase from $476,4 billion as at December 31, 2021 to $582,3 billion as at March 31, 2022, dominated by commercial banking sub-sector deposits constituting 90,1 percent.

Foreign currency deposits accounted for 46,6 percent of total deposits, while the balance of 53,4 percent was local currency denominated deposits.

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