Despite the economic challenges experienced in the country worsened by the Covid-19 pandemic, the local banking sector is in a sound position with key statistics pointing to a viable sector.
Figures on key indicators such as profitability and liquidity ratios from the Reserve Bank of Zimbabwe (RBZ) point to a sector that is stable with ability to withstand pressure.
"The banking sector is in a very sound position right and has been like this for some time now," said RBZ deputy director economic research and policy division Dr Nebson Mupunga. He was speaking during the Zimbabwe Finance Conference which was hosted by Financial Markets Indaba (FMI) in conjunction with Business Weekly and sponsored by Nyaradzo Group.
"The sector is viable and profitable, our banks are able to stand extreme stress," said Dr Mupunga.
An overview of the sector, as of March 31, 2021 shows that local banks were well capitalised with average capital adequacy ratio of 30,04 percent, above the regulatory limit of 12 percent.
According to the RBZ, average non-performing loans (NPL) ratio is at 0,36 percent, which is well below the international benchmark of less than 5 percent.
Statistics from the central bank also show that the sector is viable and profitable as shown by positive profitability ratios with return on asset (ROA) at 0,97 percent while return on equity (ROE) stands at 5,9 percent.
At 68,56 percent, average liquidity ratio is well above the stipulated benchmark of 30 percent.
"These factors are critical for banks to be able to underwrite significant business as well as to support the envisaged average economic growth of above 5 percent under NDS1 (National Development Strategy).
"The level of banking sector financial intermediation is improving as reflected by a loans to deposits ratio of 44,16 percent as at 31 March 2021, which was an improvement from 39,45 percent as at 31 December 2020.
"Loans to deposit ratio is gradually recovering towards the desired historical levels of above 70 percent as inflationary pressures recedes," said Dr Mupunga.
He added the recent pick-up in bank lending is expected to increase the contributions of interest income and reduce the share of fees and commission, which has been one of the concerns by the market.
To further enhance the sector's role in economic development, Dr Mupunga indicated efforts were being made to promote savings deposits necessary for enhancing long term lending.
He said: "Savings deposits also enables bank customers to realise a return and preserve value of their investments."
However, experts have argued a stable policy environment is the foundation for confidence in the banking sector as well as economic recovery.
"To have savings in banks means citizens have confidence in the banking sector and the general future of the country.
"High deposits means confidence in the system and banks will have something to lend to productive sectors.
"If the savings are low, then they will be forced to borrow outside at high rates," said director Barings Asset Management Dr Brian Mangwiro during the same online conference.