Agriculture makes up the bulk of lending to the banking sector in the first quarter
The agricultural sector secured the largest share of lending from the banking sector in the three months to March 2022, with banks continuing to focus more on lending to the productive sector to minimize risk.
Fluctuations in exchange rates causing the local currency to depreciate complicated matters for lenders as more than 55% of loans disbursed were in the highly volatile local currency.
Zimbabwe forecasts gross domestic product growth of 5.5% this year thanks to strong performance in the agriculture, mining and manufacturing sectors.
According to the latest first quarter (Q1) banking sector report from the Reserve Bank of Zimbabwe (RBZ), 77.3% of total lending was channeled to the productive sectors of the economy, compared to 19.04% for consumption purposes.
Out of the productive sector segment of 77.3%, agriculture obtained the bulk of disbursements at 25.61%, followed by the manufacturing sector at 11.60%.
Most banks deliberately favor financing agriculture, which was seen as a very viable option given the volatility of the economy. This is further facilitated by the gains in agricultural production last year, which gave the positive impression that producers in the sector had the capacity to repay.
The quality of the banking sector’s loan portfolio remained strong, as evidenced by the ratio of non-performing loans (NPLs) to total loans of 1.57% as of March 31, 2022, compared to the international benchmark of 5%.
For the period under review, a profit of $27.05 billion was realized compared to $6.58 billion for the corresponding period in 2021 which the Central Bank attributed to interest income from loans, advances as well as fees and commissions which constituted 34.36% and 30.32% of total revenue respectively.
Total banking sector deposits amounted to $582.26 billion in the first quarter, an increase of 22.23%, from the ZW$476.35 billion reported as of December 31, 2021.
The average prudential liquidity ratio for the banking sector of 61.38% as of March 31, 2022 was above the minimum regulatory requirement of 30%, reflecting a high stock of liquid assets in the sector.
“As part of the measures aimed at strengthening the stability of the banking sector, the Bank is implementing a number of measures to strengthen confidence in the economy, deal with market indiscipline, stabilize inflation and interest rates exchange rate and create an enabling environment to support the economic growth rate envisaged for 2022,” the RBZ said.
As of March 31, 2022, there were 19 institutions in operation, including 13 commercial banks, 5 building societies and 1 savings bank. In addition, there were 179 credit-only microfinance institutions, 8 licensed deposit-taking microfinance institutions and 4 development finance institutions under the Bank’s jurisdiction.
Banking sector assets stood at $969.24 billion, a position representing an increase of 27.04% from the $762.96 billion recorded as of December 31, 2021.
However, the cost of financing remains relatively higher as the Bank’s key rate at the time was 80%, which has since been raised to 200%.
Experts say high interest rates could hamper this year’s agricultural season and also lead to high levels of default.