Local banks adequately capitalised: RBZ

Tapiwanashe Mangwiro 

LOCAL banks are adequately capitalised with an average capital adequacy ratio of 35,45 percent, the highest in two years and above the regulatory limit of 12 percent, the Reserve Bank of Zimbabwe (RBZ) has said in its latest banking sector report.

On average, capitalisation levels are double the required limits, according to the central bank’s banking sector report for the third quarter of 2022. 

Capital requirements are standard regulations for banks and other depository institutions to determine how much liquid capital must be held against a prescribed value of assets.

There has been an upward trend in the banking sector capital adequacy ratios, as core capital increased due to improved profitability by banking institutions over the period ending September 30, 2022.

Under the current regulations, all tier 1 banks must have a minimum capital of US$30 million. 

Commercial banks, merchant banks, development banks, finance, and discount houses in the tier 2 category are required to have a minimum capital equivalent of US$20 million while deposit-taking microfinance institutions must have an equivalent of US$5 million.

Commenting on the report, banker Ray Mandeya said the banking sector has “good liquidity indicators as shown by an average liquidity ratio of 59,51 percent well above the stipulated benchmark of 30 percent”. 

“These factors are critical for banks to underwrite significant business and to support the envisaged average economic growth of above 3 percent.”

However, the liquidity ratio has been on a declining trend from a high of 74,85 percent in June 2020 as banking institutions are increasing their lending, as reflected by the gradual increase in the loans to deposits ratio from 44,16 percent in March 2021 to 52,83 percent for the period under review.

Economist Dr Prosper Chitambara said the capitalisation levels would help ensure stability in the financial sector while creating sustainable financing.

Banks have been increasing support to productive sectors of the economy with total banking sector loans and advances for the quarter, increasing to $1,1 trillion from $603,14 billion as at June 30, 2022.

According to the RBZ, the growth was largely attributed to the translation of foreign currency-denominated loans amounting to $704,71 billion, which constituted 68,97 percent of total banking sector loans. 

Loans to the productive sectors constituted 76,29 percent of total loans as at September 30, 2022. 

Banks have also seen the percentage of non — performing loans (NPLs) cooling off from a three — year high in the quarter ending September 30, 2022.

Economist Mr Tinevimbo Shava said, “The quality of loans remained satisfactory as reflected by the non-performing loans to total loans ratio of 1,4 percent, against the generally accepted international threshold of 5 percent.”