Banks closing their lending taps

THE average loan-to-deposit ratio for Zimbabwe’s commercial banks last year was 48,7% from about 72% in 2008 as banks slowed down on lending due to the liquidity crisis which followed after the economy was dollarised.

During the first half of last year the average loan-to-deposit ration was 35,85%.
The levels are remarkably low compared to a regional average of about 75,1% recorded during the same period.
Kingdom Bank has been the emblem for an industry being blamed for closing lending taps.
The Lynn Mukonoweshuro-led bank had the most attractive loan-to-deposit ratio of 119% during the period under review. Kingdom Bank’s performance was far much better than most major banks in the region. The region’s loan-to-deposit ratio is said to average 109%.
The bank’s deposits during the period was US$35,6 million
MBCA and CBZ were both on second with 67%, Metropolitan bank 61%, NMB 54%, ZB Bank 42%, TN Bank 39%, Stanbic 31%, FBC 22%, Standard Chartered 21% and Barclays 17%.
Banks are unique businesses, not only as guarantors of deposits, but also as suppliers of capital without which an economy cannot function.
This balancing act is reflected in the value of a bank’s lending as a proportion of the money it has in deposits.
Analysts said the extent of credit extension as at December 31 2009 indicated that lending had been restricted as reflected by the average loan-to-deposit ratio of 48,7%.
However, the quest for growth in profit by banks had often been undertaken at the expense of sound lending practices. Since the economy was dollarsised, the pendulum swung too far forcing the Reserve Bank to read on banks the riot act in its last monetary policy which was presented in July last year.
Last week, Finance minister Tendai Biti said he noted with concern that although there was a gradual increase in the level of deposits there was no corresponding level in loans and advances.
He said this was undermining deposits-savings mobilisation and discouraging borrowings.
“Government is, therefore, urging all the financial institutions to play their part in the economic recovery and growth efforts by reducing the gap between deposits and lending rates,” said Biti.
Biti said low interest rates of less than 0,2% on deposits against high lending rates of over 25% at some banks, coupled with other high bank charges, discouraged savings.
Bank lending increased significantly in 2009 in tandem with the increase in the deposit base. The minister indicated that high bank lending had given rise to a number of vulnerabilities.
“These risks are particularly related to high exposure from non-performing loans with the central bank and other borrowers in both the private and the public sectors,” he said.
While some banking institutions have mobilised relatively large amounts of deposits, in some instances, this has not resulted in corresponding levels of loans and advances.
Banks do not have other sources of funds beyond deposits, shareholders’ equity, and borrowing. The ratios help to interpret why banks are so nervous about lending in an unstable environment.
However in the case of listed banks such as Kingdom, NMB, CFX, CBZ and FBC, they have another constituency to answer to; shareholders.
In a recent statement, the Reserve Bank said: “As monetary authorities we are greatly concerned with extreme instances of disintermediation at some banking institutions. While we appreciate the need to conduct due diligence and sound risk management, banking institutions should play a meaningful role and contribute to the economic turnaround of the country”.
The Reserve Bank said banking institutions should balance the need for sound risk management and financial intermediation in order to boosts confidence in the financial sector and spur the economic recovery process.

 

Paul Nyakazeya

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