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Business Reporter
NON-performing loans  in the local banking sector had risen to 18,5 percent by June 30 2014, having jumped from an average of just under 15 percent last year, the Reserve Bank of Zimbabwe has said.
The apex bank said difficult economic conditions and increasing cost of doing business had weakened debt repayment capacity of borrowers.
In his maiden monetary policy statement RBZ governor Dr Mangudya said credit risk thus remained a key element of the risk profile in the sector.

“As a result, the level of non- performing loans has risen from 15,9 percent as at December 31 2013 to 18,5 percent as at 30 June 2014,” he said.
NPLs have grown from 1,62 percent in 2009, 3,2 percent in 2010, 6,17 percent in 2011, 12,2 percent in 2012 and 14,51 percent in 2013.

The surge in delinquencies and loan losses has dampened banks’ risk appetite. As such, banks have adopted a risk averse approach to lending, limiting credit to productive sectors of the economy.

Growth in NPLs in Zimbabwe is causing banks to cut on lending to the economy when companies require working capital and funds for retooling.
The RBZ said this was having a huge bearing on the economy as reduced credit has led to a decline in economic growth, private consumption, job losses and decrease in Government revenue.

The RBZ said NPLs have exceeded the international benchmark of up to 5 percent and could be a threat to financial stability and economic growth.
Against this background, the apex bank said it had formed a national special purpose vehicle known as Zimbabwe Asset Management Corporation (Pvt) Limited to acquire NPLs from banks.

This is meant to clean up and strengthen the banks’ balance sheets to provide them with the liquidity to fund valuable projects for the economy to rebound and to mitigate loss of confidence.

ZAMACO has since taken up $45 million from three banks by mid August. Dr Mangudya said the company will be funded from non-funded lines of credit, new inflows, long term bonds and treasury bills.

However, banks sector posted a combined $13,8 million profit for the first half of the year, a growth 180 percent against the same period last year.
In his maiden monetary policy

statement Reserve Bank Governor Dr John Mangudya’s said banks that posted losses were weighed down by the effect of huge non-performing loan book.
“A total of 12 banks recorded profits for the period ended 30 June 2014. Losses recorded by the few banking institutions are attributed to high levels of non-performing loans,” Dr Mangudya said.

He added that the losses were also due to lack of critical mass in terms of revenue to cover high operating costs and deliberate strategy by some banks to clean up bad loan books through provisioning.

Total banking sector deposits increased by 4,86 percent from  $4,73 billion as at December 31 2013 to $4,96 billion as at June 30 2014. Dr Mangudya said loans and advances increased from $3,7 billion to $3,81 billion, during the six months under period.

The banking sector loan portfolio is dominated by the industrial sector, household, transport and agriculture, constituting 26,07 percent, 21,21 percent, 16,95 percent and 15,68 percent of total credit, respectively. Remaining sectors contributed less than 10 percent each.

Banks aggregate core capital for the banking sector amounted to $753 million as at 30 June 2014 (excluding Interfin Bank under curatorship).
As at June 30 2014, a total of 14 out of 19 operating banking institutions (excluding POSB) were in compliance with the December 2013 prescribed minimum capital requirements of $25 million.