An advisory unit of Imara Securities says the quality of assets for local banks is a major concern for the financial services sector, as non-performing loans remained high in the sector.
According to a latest economic report compiled by the brokerage firm, Zimbabweans continue to have a high appetite for borrowing despite defaulting on loans.
The country’s loan to deposit ratio, which currently stands at 79,1% is one of the highest in the region although the bulk of deposits were transitory in nature.
“Banking institutions in Zimbabwe have seen strong deposit and credit growth ahead of gross domestic product growth over the last three years, albeit off a very low base,” Imara said.
“Nonetheless, overall undercapitalisation of most banks remains a challenge especially when non-performing loans (NPLs) are taken into account.
“In our view, most of the lending decisions have been based on the size of the collateral being offered and relationships rather than cashflow.
“Good information is also scarce in the absence of a national credit bureau.”
High lending rates, according to the report, have led to high slippages coupled with weak fundamentals of some local companies (high leverage, low profitability and low risk management) giving concern that credit quality can deteriorate.
“Furthermore, the value of the collateral, which is real estate in most cases, tends to be overstated,” added the report.
“This has allowed the official NPLs numbers to be low. However the IMF estimated that NPLs were about 3,1% of outstanding loans.
“Banks are sitting on a significant unknown quality of NPLs and these continue to grow,” Imara added.
Most banks, which recently released their financial results, indicated a slowdown in advancing loans.
Total bank assets for reporting banks grew by 42% from $3,3 billion in December 2010 to $4,7 billion in December 2011.
Commercial banks accounted for 87% of total assets while building societies and merchant banks accounted for 10% and 1% respectively.