The banking sector is primed to subsidize local economic activity following an improvement in the financial sector fundamentals.
Experts at the recent Zimbabwe Finance Conference hosted by Financial Markets Indaba highlighted that financial sector policies should drive confidence in local economic growth.
Poor corporate governance, insolvency and imprudent lending activities, high transaction costs and marginal interest rates are some of the factors that have plagued the sector in the past.
A combination of monetary policy intervention and strategies by banks themselves have pulled the sector out of the doldrums. Both monetary and fiscal authorities have managed to curtail inflationary pressures
Addressing delegates at the Conference, Reserve Bank of Zimbabwe (RBZ) principal economist Dr Nebson Mupunga said key indicators show the sector is doing well and he also noted that there has been a significant up tick in the sectors level of financial intermediation in the first quarter of 2021,
As at March 31, 2021, Zimbabwes banking sector was characterised by well-capitalised banking institutions, with average capital adequacy ratio of 30,04 percent above the regulatory limit of 12 percent, and sound asset quality, with non-performing loans ratio of 0,36 percent, well below the international benchmark of less than 5 percent, he said.
Its a resilient banking sector as attested by limited vulnerability to extreme shocks as indicated by latest RBZ stress test results; viable and profitable sector as shown by positive profitability ratios, ROA (0,97 percent) and ROE (5,90 percent); good liquidity indicators as shown by an average liquidity ratio of 68,6 percent well above the stipulated benchmark of 30 percent.
These factors are critical for banks to be able to underwrite significant business as well as to support the envisaged average economic growth of above 5 percent under NDS1,” Dr Mupunga said.
The loan-to-deposit ratio is gradually inching towards historical levels of above 70 percent as inflationary pressures decrease.
Zimbabwes annual inflation has declined to 194 percent as at April 2021 from a high of 837,5 percent in July last year.
Dr Mupunga underscored that improved lending as a result of the stable macro-economic environment, will reflect on banks performances.
The recent pick-up in bank lending is expected to increase the contributions of interest income and reduce the share of fees and commission. This is also critical for enhanced financial intermediation, he said.
Barings Asset Management director Brian Mangwiro said even though there are improved fundamentals, the local financial services sector still needs to regain lost trust.
There is need for confidence in the banking sector, and that confidence will attract savings, which are critical for the economy. Without these savings companies are forced to borrow externally, and with current sovereign risk, these borrowings tend to be very expensive. So it becomes a vicious cycle. Policies for the financial services sector need to increase confidence, Mangwiro said.
In the past, the industry has been blighted by hyperinflation and currency changes, with most of the value loss accruing to the banking public.
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