THE banking sector in the year 2022 went through perennial developments, which however, required a shift in the ordinary way of doing business.
However, the sector remained resilient.
The majority of financial institutions managed to navigate through multifaceted crises and tougher regulations imposed to tackle Zimbabwe’s protracted crisis.
But a major highlight was the announcement by international financial institution, the Standard Chartered Bank that it will be exiting the country.
The development came at a time when the number of correspondent banks had tumbled to only two from a peak of 105.
But on a positive note, the European Investment Bank further cemented its relationship with the country’s financial institutions by extending credit facilities worth US$25 million to NMB and First Capital Bank for private sector financing.
The first to seal a deal with EIB was Cabs in 2021 when it received a US$18 million credit line.
During the year, President Emmerson Mnangagwa introduced measures that saw banks being suspended from lending for two weeks in a bid to stop speculation against the Zimbabwean dollar, which in September had depreciated by about 70% since January.
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The policy rate had already risen from 35% in early 2021 to 80% before the June 27 decision. This development has made borrowing more expensive with many.
Several firms say they cannot borrow at those rates. Individuals with bank loans have seen their disposable incomes eroded by the high rates. As a result, banks have maintained a cautious approach to lending to stir away from high risks.
Banks have also been exploring other avenues of making money away from traditional models. As a result, growth in banking sector revenue has been largely spurred by non-interest income. Funded income accounted for 39,8% in 2021, against 20,51% in 2020, while total loans increased. Bank profitability generally remained on the rise despite obstructions such as inflation. Average capital adequacy ratio for the sector has remained above the regulatory minimum of 12%, standing at 33,87% in H2 2022 while core capital stood at US$777,34 million during the same period.
As the outlook remains uncertain, market watchers have expressed mixed feeling on the prospects of the sector.
In its recent banking report, IH Securities said banks will experience a surge in interest incomes, owing to repricing of rates on existing loans by the central bank.
“In our view, banks will experience a surge in interest incomes owing to repricing of rates on existing loans by the central bank,” IH Securities.
The research firm added that reported non-performing loans (NPLs) for the sector have remained below the recommended thresholds by a significant margin.
According to the central bank report for the half year ended June 30 2022, the banking sector has demonstrated resilience as reflected by satisfactory financial soundness indicators during the period.
“Government and the bank have continued to roll out complementary fiscal and monetary policy interventions to ensure financial sector stability, which is critical in the recovery of the economy,” the RBZ said.
“In the outlook, the safety and soundness of the banking sector is expected to be maintained on the backdrop of pragmatic monetary and fiscal policies being implemented by the bank and the government, which are putting the economy back on track to economic stability.
“The bank will continue to monitor the effectiveness of the risk management initiatives and measures being implemented by banking institutions in order to cope with the changing operating environment and ensure financial sector stability,” it added.
The Zimbabwe Independent banking sector survey projected that the outlook for the rest of the year to be volatile and uncertain.
“Geopolitical risks remain tense and acute, and will add to supply chain pressures in the developed world,” the report said.
“A dramatic rise in inflation coupled with recessionary risks across several economies is serving as the basis for the most rapid monetary policy tightening in decades. This fraught macroeconomic environment increases risk aversion in global financial markets and generates a material headwind for developing economies.
“The International Monetary Fund forecasts 2022 global gross domestic product (GDP) growth of 3,2% and 3,8% in sub–Saharan Africa. African countries with elevated levels of dollar denominated sovereign debt may face particularly challenging constraints.” the survey noted.
