HARARE: Zimbabwean banks have adopted a cautious approach to lending following a sharp rise in non-performing loans.The rate of non-performing loans (NPL) rate was at 16 % in December, which was a marked increase from under 5% in 2009 at the onset of dollarization.The ever increasing non-performing loans will likely result in banks being more cautious
Research group, MMC Capital made the observation in its latest report covering banks, which recently released results for the full-year to December 2014.An NPL is when payments of interest and principal debt are overdue by 90 days or more, or at least 90.MMC said banks now preferred lending corporates instead of individuals.
“There was an increase in the distribution of loans and advances to key sectors of the economy such as manufacturing and agriculture whilst exposure to individuals has decreased from 25 percent in 2013 to approximately 21 percent in the period under review,” MMC noted.
“For the full year period ended 31 December 2014, overall banking sector’s Loan to Deposit Ratio (LDR) decreased to 72 percent from 73 percent last year.
“This drop entails that loans and advances are growing at a slower rate than deposits as a result of increased lending conservatism by the banks in Zimbabwe.”A number of financial institutions have obtained writs of execution to attach property to recover money from defaulting clients.
In February, the Reserve Bank of Zimbabwe took over $65m in nonperforming loans from banks to help restore viability in the sector.The report said the economic environment remains tense, with credit expansion inhibited by the obtaining liquidity challenges.
“The ever increasing non-performing loans will likely result in banks being more cautious in their lending approach this year relative to the prior year,” MMC said.”We are of the view that, there will be less impairment charges this year following the massive ‘book cleaning’ which happened last year when almost every bank chose to increase their bad debts allowances.”
Zimbabwe’s banking sector has not been spared by the liquidity challenges that have crippled the economy over the past years.However, the banks have enjoyed high interest rates on loans since the adoption of multi-currency regime, negatively affecting the local industry which cannot afford to access loans for capital at such high rates.
In a bid to reduce the average lending rates, the government in 2013 negotiated with banks to reduce their lending rates to levels below 10 % per annum.But the agreement was suspended before the end of the year after banks complained that the move had narrowed margins.
