Zimbabwe banking sector remains profitable

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The Reserve Bank of Zimbabwe (RBZ) says the banking sector remains profitable, largely driven by non-interest income and resilience attributable to strong risk management practices, capital and liquidity positions.

According to the RBZ quarterly banking sector report for the period to September 30, 2023, the sector’s aggregate profit for the quarter under review was $4,67 trillion compared to $341,28 billion reported in the corresponding period in 2022.

“Profitability was mainly driven by non-interest income, which accounted for 86,73 percent of total income.

“The non-interest income was primarily comprised of translation gains on foreign currency assets and investment properties, as well as fees and commissions,” reads part of the report. The RBZ said sector profitability as measured by return on assets and return on equity ratios were 23,69 percent and 55,63 percent, compared to 16,46 percent and 53,19 percent reported as of September 30, 2022, respectively.

According to RBZ, the performance of the banking sector remained satisfactory, as evidenced by strong capital and liquidity positions, low levels of non-performing loans, and satisfactory earnings performance. The total banking sector assets increased by 3,95 percent to $28,36 trillion as of September 30, 2023, from $27,28 trillion as of June 30, 2023.

Total loans and advances, which accounted for 30–40 percent of the total banking assets, remained dominant.

The RBZ report shows that the banking sector liabilities largely comprised foreign currency deposits (45,50 percent), capital and reserves (22,16 percent), and other liabilities (11,17 percent), as of September 30, 2023.

During the period under review, all banking institutions, except one institution, complied with minimum capital ratios, that is, the prescribed minimum capital adequacy ratio of 12 percent and the Tier 1 ratio of 8 percent.

The banking sector’s average capital adequacy ratio and tier 1 ratios were 43,15 percent and 27,28 percent, respectively.

“Banking sector core capital increased from $5,05 trillion as of June 30, 2023, to $5,10 trillion as of September 30, 2023, and the growth was largely attributed to retained earnings,” the RBZ said.

It added that retained earnings from several banking institutions were largely driven by revaluation gains from investment properties and translation gains from foreign currency-denominated assets. As of September 30, 2023, aggregate banking sector loans and advances were $9,70 trillion, and foreign currency-denominated loans accounted for 88 percent.

RBZ said the banking sector continued to support the funding requirements of the productive sectors of the economy, as evidenced by loans to the productive sectors, which constituted 74 percent of total loans.It said credit risk in the banking sector remained low, as evidenced by an aggregate nonperforming loans to total loans (NPL) ratio of 2,34 percent as of September 30, 2023.

The RBZ said the ratio remains within the acceptable international threshold of 5 percent and the trend in the level of non-performing loans ratio from December 2020 to September 2023.