Zim banks register strong profits amidst fierce storm

The Reserve Bank of Zimbabwe

Zimbabwe’s banking sector was profitable in the first quarter of this year, registering profits of $207,25 billion, up 666% compared to the prior period, a central bank report shows.

Of the 19 operating financial institutions, 18 banks reported profits during the quarter, according to the Reserve Bank of Zimbabwe banking sector report for the quarter ended March 31, 2023.

The main driver of banking industry profitability was noninterest income, which accounted for 67,64% of total income of $448,87 billion while interest income from loans and advances accounted for 24,70%.

Of the non-interest income of $303,59 billion, fees and commissions constituted 23,82% while revaluation gains from foreign currency assets and investment properties accounted for 21,63% and 11,79% of non-interest income, respectively.

“The banking sector remained safe and sound as reflected by satisfactory financial soundness indicators.

“The banking sector has demonstrated resilience notwithstanding the effects of the global shocks and the dynamism in the macroeconomic environment,” the report reads in part.

In the period under review, the country experienced high inflation, exchange rates volatilities, power shortages among other challenges.

These challenges increased the operational costs for many businesses.

The return on assets and return on equity ratios were 4,92% and 16,62%, respectively.

The report shows that in the period under review, the cost to income ratio for the banking sector improved marginally to 73, 55% from 77, 20%, as banking institutions continue implementing cost cutting measures, including pursuing digitisation for some of their services.

Administrative expenses, salaries and employee benefits were the major cost drivers constituting 49,56% and 46,44%, respectively of the total banking sector operating costs of $151,92 billion during the quarter under review.

Total deposits continued on an upward trajectory amounting to $3,13 trillion, a 38,36% increase on the prior period.

The growth in banking sector deposits was mainly ascribed to the increase in foreign currency denominated deposits, which accounted for 68% of total deposits.

The report indicates that total banking sector assets amounted to $5,68 trillion representing an increase of 49,08% from the prior quarter.

The banking sector’s asset mix remained skewed towards loans and advances which constituted 31,43% of the total banking sector assets while balances with foreign institutions and securities and investments constituted 17,45% and 12,40%, respectively.

In the outlook period, the banking sector is envisaged to remain safe and sound with banking institutions playing a greater role in supporting the recovery and growth of the economy.

“Banking institutions are expected to continuously evolve and re-engineer operations in order to remain relevant, effective and strategic by tapping into vast opportunities in the economy,” the report added.

“Banking institutions also need to pay close attention to the growth of the foreign currency denominated loans to manage loan delinquency.

“The bank will remain vigilant by conducting thematic asset quality reviews in the third quarter of 2023.”

The central bank said it will also continue to monitor external and industry-specific factors and institute appropriate measures to maintain the stability of the banking industry.

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