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‘Banks to be cautious in advancing loans’

Business
Banking sector deposits are expected to grow by less than 2% this year attributed to waning disposable income and constrained economic growth, a leading brokerage firm has said, urging banks to tap into the informal sector.

Banking sector deposits are expected to grow by less than 2% this year attributed to waning disposable income and constrained economic growth, a leading brokerage firm has said, urging banks to tap into the informal sector.

BY NDAMU SANDU

In a report titled Zimbabwe Banking Sector Analysis FY2014, MMC Capital said deposits were projected to reach $5,2 billion from $5,1 billion recorded in 2014.

“We maintain our view that the following factors will continue to restrain deposit growth: economic growth remains constrained by challenges stemming from the large external debt burden and high unemployment (estimated at over 80%) and waning disposable income will also continue to have a negative impact on deposit growth,” MMC said.

Banking sector deposits have been on the increase buoyed by the return of confidence since the introduction of the multi-currency regime in 2009. MMC said deposits growth would likely be constrained this year as the marginal propensity to save remains very low.

“Given that the informal sector is growing at the expense of the informal sector, banks should develop products that are critical in tapping into the unbanked society, especially those that are mobile based,” MMC said.

Estimates showed that over $3 billion was circulating in the informal sector.

“The recent numbers from the Reserve Bank of Zimbabwe shows that mobile transactions continue to grow. What this means is that banks should urgently fine tune their business models in line with the technological developments in a bid to remain relevant,” MMC said.

MMC said credit expansion would be hamstrung by the obtaining liquidity challenges, adding that the “ever-increasing non-performing loans (NPLS) will likely result in banks being more cautious in their lending approach this year relative to the prior year”.

“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. Some of the non-performing loans dated as far as 2009. This will likely have a positive impact on profitability this year, though marginal,” MMC said.

The Zimbabwe Asset Management Company (Zamco) has so far bought NPLs worth $65 million.