Zim banks cut lending to private sector

Zim banks cut lending to private sector
Published: 13 May 2014
The slowdown in economic activity, largely typified by deflation has forced banks to take a cautious approach to lending by downsizing credit to the private sector, the Bankers Association (BAZ) has said.

In its April economic bulletin, the BAZ said a deceleration in the deposit base had caused commercial bank’s credit to the private sector to drop significantly from an annual growth of 28,7% in February 2013 to 1,5% in February 2014.

On a month on month basis, the BAZ said, total credit to the private sector by the commercial banks and the merchant banks grew from $2,7 billion to $2,8 billion, showing a 3,04 % increase.

"Of the outstanding loans and advances in the whole banking system, there were distributed as follow distribution (17,34%), services (15,29%), households (19,40%), agriculture (19,26%," BAZ said.

Agriculture continued to dominate commercial loans and advances to the private sector, followed by distribution, manufacturing, services and individuals.

The distribution illustrated that commercial banks were supporting all sectors of the economy, most prominently, agriculture, which is a lynchpin of the Zimbabwe Agenda for Socio-Economic Transformation (ZimAsset).

Despite the 'high level" support to the economy, the banking sector has remained largely bruised by the high levels of non-performing loans which were pegged at around 16% by December 2013.

"Financial results which have been produced by the various banks so far show that the performance of banks in 2013 was affected mostly by the non-performing loans, the effects of the Memorandum of Understanding which was signed between the Reserve Bank of Zimbabwe and Bankers Association of Zimbabwe and the general operating environment."

The BAZ demanded an urgent solution to the problem of non-performing loans, by calling for the speedy establishment of the National Credit Reference Bureau (CRBs) and the crafting of associate legislation as pronounced in the national budget and the monetary policy statements to enable banks to concentrate on lending while vital information on the creditworthiness of the borrower is provided by the CRBs.

It said bank balance sheets should be cleaned to allow banks to start on a clean slate sheet by setting up a Special Purpose Vehicle (SPV) to deal with the loans. In the past, Climax Investments and CBZ nominees were set up to buy off toxic assets of the banks bedevilled by the non-performing loans.

BAZ said technology based monetary transactions were low during the two first months of 2014, which is against a global trend where there is a general movement from cash based transactions towards technology based transactions.

Financial literacy, it said, was therefore imperative to encourage the economy to embrace financial innovation through the use of Point of Sale (POS), automate teller machines (ATMs) and internet based transactions to reduce the demand for cash.
- Zim Mail


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