USD use drives bank deposits, loans
THE Reserve Bank of Zimbabwe governor, Dr John Mangudya, in his monetary policy of 2023, noted that bank deposits and banking loans and advances grew exponentially driven by increased use of USDs in the economy.
Banking loans and advances increased by 114,46 percent from $603,14 billion in June to $1,29 trillion as at December 31, 2022.
Mangudya said; “Total deposits increased by 103,57 percent from $1,12 trillion as at June 30, 2022 to $2,28 trillion as at December 31, 2022 mainly driven by growth in foreign currency deposits.”
According to the bank, commercial banking sub-sector deposits constituted 91,15 percent of total banking sector deposits. Foreign currency deposits accounted for 64,24 percent of total deposits as at December 31, 2022.
“The average prudential liquidity ratio was 59,50 percent as at December 31, 2022, largely reflecting high stock of liquid assets in the sector,” the governor said.
Increased foreign currency account (FCA) balances in the banking system and aid in the form of external credit lines have enabled USD denominated business for the sector and as such 78,2 percent of loans were foreign currency denominated to December 2022.
“The increase was largely attributed to an increase in foreign currency-denominated loans, leading to the increase in their proportion from 65,87 percent as at June 30, 2022 to 78,20 percent of total banking sector loans,” Mangudya said.
As a result, the level of financial intermediation as measured by total loans to total deposit ratio, improved from 52,83 percent recorded in June, to 55,67 percent in December 2022.
According to the monetary policy statement, the foreign currency loans to foreign currency deposits ratio as at December 31, 2022 was 62,69 percent whilst the local currency loans to deposit ratio was 41,40 percent as at the same reporting date.
Economist, Tinevimbo Shava noted; “It is a sign that the economy is actually growing, because the demand for credit and the willingness to lend is increasing. This means it is the growth of the financial sector as well.”
According to Shava, this is a positive development because if the lending is towards the productive sectors of the economy, it strengthens the productive base of the economy and thus growth and development in the country is enhanced.
Economic analyst, Takudzwa Maradze said; “Such a position is a welcome one as production is mostly financed by debt. Loans oil the economy and through this, we can achieve more funds to invest in different sectors of the economy.”
Another economist, Evelyn Chifamba, said the basic explanation is that increased lending implies increased investment which is increased gross domestic product (GDP) or income. Looking at it from an income point of view it means the more banks lend, the more people spend and companies get more revenue.
The banking institutions continue to play an important role in supporting the productive sectors which contribute towards economic recovery and growth. In the period under review, the loans to the productive sectors constituted 78,45 percent of total loans up from 71,12 percent reported as at June 30, 2022.
In the period under review, banking sector asset quality was said to be satisfactory as non-performing loans (NPLs) have remained stable at low levels.
“As at December 31, 2022, the average NPLs to total loans ratio for the banking sector was 1,58 percent, comparing favourably with the generally acceptable international threshold of 5 percent,” the governor said.
The trend in the level of NPLs ratios from December 2019 to December 2022, are signifying the positive role played by the Zimbabwe Asset Management Company (ZAMCO) and the improved credit risk management strategies being implemented by banks to contain NPLs.
In terms of bank charges, the central bank said the pricing model agreed between the Bank and Bankers Association of Zimbabwe (BAZ) in May 2022, will continue to guide the review of transactional charges and service fees.
“Banking institutions are urged to maintain a balance between business viability and the provision of affordable and accessible products and services in the spirit of promoting financial inclusion and the use of electronic means of payments,” said Mangudya.
The central bank said it shall continue to monitor the terms and conditions of business activities to ensure adherence to fair business practices and reasonable pricing in line with the Banking Act, and the Consumer Protection Framework.