HARARE - Zimbabwe banks’ net profits slumped by 82 percent to $4 million in the quarter ended March 31, 2015, from $22,4 million recorded prior year on the back of increases in loan impairment charges and softening yields on loans, the central bank said.
In its Banking Sector Report for the 2015 first quarter, the Reserve Bank of Zimbabwe (RBZ) said the loan impairment charges increased from $12,3 million as at March 31, 2014 to $40,1 million for the period under review, which negatively affected banks.
“Credit and liquidity risks remained the major risks facing the banking sector. Credit risk remained high as evidenced by the average non-performing loans to total loans (NPL/TL) ratio which declined marginally to 15,19 percent as at March 31, 2015, from 15,91 percent as at December 31, 2014,” the RBZ said.
This ratio is above the internationally acceptable benchmark of five percent.
According to the report, 13 out of 18 banks reported profits, while five recorded losses during the period under review.
The losses recorded by the remaining institutions were attributed to high loan impairments due to deterioration in asset quality, lack of critical mass to cover operating expenses, refinancing costs of liquidity challenges and adjustments to reasonable and responsible pricing
The central bank, however, noted that the sector remained “adequately capitalised” with the average capital adequacy ratio of 18,6 percent, against the minimum regulatory capital adequacy ratio of 12 percent.
“As at March 31, 2015, a total of 13 banking institutions were compliant with the regulatory minimum capital requirements. The non-compliant banks are instituting various measures towards compliance,” the report said.
The net capital base nonetheless increased to $957 million for the period under review from $926,5 million for prior comparative period.
“However, the sector’s aggregate core capital base deteriorated from $811,2 million reported as at December 31, 2014 to $801,58 million as at March 31, 2015.
“The decrease in the aggregate core capital position was largely attributed to losses recorded by a few banking institutions as well as regulatory adjustments following on-site examinations conducted at some banking institutions during the quarter,” the central bank said.
Total banking sector loans and advances amounted to $4,06 billion for the quarter up from $4,01 billion as at December 31, 2014.
“Reflecting the challenges in the operating environment, banking sector earnings performance deteriorated as shown by a decrease in aggregate net profit from $22,40 million as at March 31, 2014 to $4,02 million for the quarter ended March 31, 2015,” the central bank said.
The subdued earnings performance, according to the RBZ, was also reflective of the conservative lending approach and a sub-optimal trade-off between high liquidity and profitability.