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Concerns over mining revenue

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Contributions by the mining sector to local banking deposits remain minimal despite accounting for over 50% of the country’s export earnings, raising doubts on the compliance by mining firms to a directive to bank locally, official figures have shown.

Statistics from the Finance ministry show that on a month-on-month basis, deposits in the last five months grew by an average of 3%, reaching $3,58 billion at the end of May from $3,1 billion last December.

Growth in deposits was spurred mainly by receipts of resources from tobacco sales and the repatriation of excess balances from Nostro accounts as required by the Reserve Bank of Zimbabwe.

However, deposits remain skewed in favour of four banks (out of 25) which hold more than 60% of total revenue.

“The major sources of bank deposits are services (26%), financial organisations and investments (13%), households (17%), and distribution (11%),” reads part of the Mid-Term Fiscal Review.

“The mining sector, despite being the major export earner, continues to be among the least sources, contributing only 3%.”

During the period under review, loans and advances increased by 39% from $2,74 billion in January to $3,029 billion by May 2012, translating to a loan to deposit ratio of 84% compared to 87% last year.

This, the ministry said, reflected over-exposures of some banks, a situation that has resulted in high non-performing loans.

According to the Mid-Term Review, the financial sector, although resilient and projected to grow by 23%, faces a number of challenges related to capitalisation, liquidity and credit risks.

“A number of banks remain weak, with high credit risks, deteriorating asset quality and high non-performing loans. The uneven distribution of deposits also compound the liquidity challenges in the banking sector.

“Current vulnerabilities in the sector have eroded confidence, particularly in smaller banks, resulting in a flow of deposits to bigger banks, which are perceived to be stable,” Biti said.

While several weak banks have met the capital requirement, the Finance ministry said credit risks remained high, particularly for small banks that have low capital buffers.

“Asset quality also has deteriorated reflecting unsound lending practises and poor risk management. Loan origination from weak banks remains strong, funded by unstable short-term deposits,” the Mid-Term Fiscal Review said.

“Consequently, non-performing loans increased from 7,55% in 2011 to 9,9% in June 2012 against the internationally accepted Basel 11 threshold of 5%.

“This, therefore, raises concerns over quality of corporate governance and effectiveness of supervision within the financial sector.”

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