Zimbabwe: Banks Remain Cautious On Lending Rates As NPLs Rise

Banks are exercising extreme caution on raising lending rates amid fears this could see non-performing loans (NPLs) rising in the current inflationary environment, a banking official has said.

The sector is still recovering after recording hundreds of millions worth of NPLs which were assumed by the Zimbabwe Asset Management (Zamco).

In the full-year to December 2018 (FY 18) NPLs rose, as credit risk increased in the economy from 7,08% in December to 8,25% in the prior financial year.

BAZ president Webster Rusere last week told an Actuaries Association of Zimbabwe (ASZ) 5th annual congress that while the RBZ had not capped the lending rates, banks are keen on safeguarding the interests of the borrower as well as those of the investors.

"When you speak to your customers, you look at their capacity to service loans. Essentially, we don't want a situation where NPLs start to ravage. I guess the issue is going back to parliament and presenting issues when they arise. We need to engage as a sector and build again. The RBZ has not capped the lending rates per se. Lending rates have all gone up, but they are not enough to compensate the losses being suffered by people," he said.

Faced with market turmoil and currency volatility that have eroded their balance sheets, and earnings, banks are urging government to tackle the root causes of the country's economic problems and not just tinker with symptoms to fix the broken economy.

Rusere said the problem was now broad, adding loss of confidence in the economy which is making it difficult to sell, especially insurance and pension policies.

He, however, said although banks and industry are suffering, the long and short term solution hinged on production and engagement.

"Right now, we are talking about loss of confidence. Is it only the banks that are suffering? Bankers are only a barometer and a facilitator. The issue is we need production we can't survive without production. We need each other and we need to stabilise the environment and encourage pensioners to buy pensions polices," he said.

Discussions at the conference revolved around how banks are taking haircuts on $3,3 billion of Treasury Bill holdings and $4,6 billion in private sector loans with returns on all loans massively negative in real terms.

Meanwhile, ASZ immediate past-president Loreen Makwanya said it was time Zimbabwe reflected on how the country could solve the current pensions, savings and protection crisis as failure to resolve the problems in these industries, will erode confidence in the savings industry for generations to come.

"A country that does not mobilise savings impacts its ability to develop economically. We are not only battling with the current but also legacy hyperinflation issues of responding to the commission of inquiry findings, current change of currency and loss of value, the new environment, most critically how should we be setting long term assumptions with the level of volatility in this economy," she said.

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