LOCAL banks are expected to adopt a cautious lending approach due to the high levels of non-performing loans and uncertain economic environment as the country gears for elections later this year, a local research firm has said.
Report by Bernard Mpofu
In its full year 2012 (FY12) banking sector analysis, MMC Capital said despite recording improved earnings in the year under review, local banks may in the coming months be more conservative and fail to meet the loan appetite for the banking public before the polls.
Following the conclusion of the referendum, principals of the inclusive government are later this year expected to call for elections, marking the end of the coalition formed in 2009.
Total profit after tax for the reporting banks, according to the report, stood at $132 million, a 23,4% increase from US$107 million reported during the same period last year. The total banking sector assets grew by 20% from US$4,74 billion as at 31 December 2011 to $5,70 billion as at 31 December 2012.
The average return on equity and return on assets for the reporting banks for the FY to 31 Dec 2012 was 18% (21% in 2011) and 3% (3% in 2011) respectively. In 2012, 895% of the reporting banks posted positive earnings, an improvement from 83,3% recorded in 2011.”
“The prevalence of short term lending, coupled with subdued capital inflows, has deprived the economy of investments in capital projects which are an imperative for sustainable economic growth.
As a result of the high perceived risk posed by Zimbabwe, which has been magnified by political uncertainty, capital inflows into the country are mismatched with the demand for long term credit in the economy,” reads the report in part.
“Going forward, we foresee banks adopting a conservative approach to lending in the medium term driven by an uncertain credit environment which has translated into rising non-performing loans. In the outlook, we, therefore, expect loans and advances to follow a less aggressive trajectory relative to deposits.”
Despite recording strong growth during the period under review, MMC said a memorandum of understanding which seeks to lower bank charges was expected to affect profitability of the financial services sector.
Banks’ profitability also seems to be trending in the right direction with total profitability having grown 23,4% to $132 million in 2012, with 89,5% of reporting banks posting positive earnings, an improvement from 83,3% in 2011,” the report further reads.
“The downside risk factors to this positive growth in profitability include the negative impact of the MOU signed between the Central Bank and the banking institutions whose net effect is to lower incomes. Statistics show that the industry average Net Interest Income – to- Total Income ratio stood at 46% for the full year 2012, indicating that banks are still leveraging significantly on non-lending income.
“Banks seem to have exhausted their capacity to continue to implement cost containment measures as the mean cost to income ratio remained relatively flat at 70% relative to the prior year – 2011. The cost-to-income ratio for the standardised data for the FY 2012 however exhibits negative skewness reflecting that the majority of banks are still burdened with costs. “
The challenge then is for banks, the report reads, to explore more innovative ideas to drive revenues to contain the loan to deposit ratio going forward. Net interest margin for the reporting banks for the FY 2012 was normally distributed with an average NIM of 11%.
As at 31 December 2012, 61,23% of total bank deposits were concentrated in the top quartile banks (CBZ; BancABC; CABS; Stanbic; and StanChart) compared to 57,01% (CBZ, BancABC, Stanbic, Stan Chart and CABS) in the prior year, signifying the increasing concentration in the banking sector.
CBZ maintained pole position in terms of deposit market share (26,01%), BancABC maintained second position (9,76%) with CABS moving up 2 places to 3rd position (9,23%) in FY 2012 compared to 5th position in FY 2011.