Banking sector safe, sound: RBZ

Business
THE Reserve Bank of Zimbabwe (RBZ) says the banking sector is safe and sound after one of the troubled banks aligned its capital position with the prescribed minimum equity capital.

THE Reserve Bank of Zimbabwe (RBZ) says the banking sector is safe and sound after one of the troubled banks aligned its capital position with the prescribed minimum equity capital.

BY TARISAI MANDIZHA

In January, RBZ governor John Mangudya gave the three distressed banks — AfrAsia Bank Zimbabwe, MetBank and Tetrad Investment Bank — a June 30 deadline to shape up or ship out. AfrAsia surrendered its banking licence at the end of January, leaving the spotlight on MetBank and Tetrad.

In a notice last week, Mangudya said MetBank had improved and its bank’s core capital position had increased to $31 million as at March 31 2015, above the minimum core capital requirements of $25 million.

Mangudya said the bank had undertaken a number of measures such as strategic realignment, balance sheet restructuring, liquidity mobilisation and cost containment strategies which resulted in the increase of the bank’s core capital.

Mangudya said RBZ had appointed the Deposit Protection Corporation as the provisional judicial manager of Tetrad to oversee the day-to-day running of the bank.

“Notwithstanding the developments relating to the two institutions, the stability of the banking sector has significantly improved and the sector remains safe and sound.

“It is envisaged that the measures instituted by the Reserve Bank and initiatives being taken by banking institutions across the sector will continue to enable banks to underwrite more business and contribute to the growth of the economy,” Mangudya said. He said the RBZ had instituted a number of measures to strengthen the banking sector to promote the general stability and confidence in the sector.

He however said credit risk, as reflected by the high level of non-performing loans (NPLs) and liquidity constraints, have been the most significant risks confronting the banking sector. Although NPLs fell to 15,19% as at March 31 from 15,91% as at December 31 2014, the ratio is still way above that of regional peers.

This has raised fears that banks would cut back on lending. RBZ recently set up the Zimbabwe Asset Management Company (Zamco) to buy bad loans with security from banks and free the balance sheets of toxic assets.

Zamco has so far bought bad loans worth $100 million. Mangudya said RBZ had made progress in establishing the Credit Reference System in order to address information asymmetry challenges and promote a good credit culture in the market. This comes on the back of individuals and companies that borrow from a number of banks and then default on repayments.

A first quarter report by RBZ showed that the banking sector’s profitability had nose-dived to $4,02 million in the quarter from $22,40 million in the comparable quarter in 2014, a reflection of the challenging operating environment.

“The subdued earnings performance is also reflective of the conservative lending approach and a sub-optimal trade-off between high liquidity and profitability,” RBZ said.