Non-performing loans were banks’ major challenge in 2019, says BAZ
The Bankers Association of Zambia (BAZ) says non-performing loans were a major challenge for the sector in 2019 despite improving to 9.1 per cent from 9.5 per cent in October.
Meanwhile, the Association has urged government to accelerate the dismantling of arrears to government contractors to avoid accumulation of new arrears.
The Banking industry wide Non Performing Loans ratio decreased from 12 per cent in 2017 to 11 per cent at the end of 2018 but remained above the prudential target of 10 per cent, and reduced to 9.1 per cent in 2019.
And in response to a press query, BAZ Public Relations and Administrative Officer Mirriam Zimba noted that the heightened level of credit risk negatively impacts on the sector’s profitability and capital adequacy position.
“Credit risk remained elevated as evidenced by the ratio of non-performing loans (NPLs) to total gross loans, which despite having improved to 9.1 per cent from 9.5 per cent as at end of October 2019, remained close to the prudential threshold of 10 per cent. The heightened level of credit risk remains an area of concern, as it negatively impacts on the sector’s profitability and capital adequacy position. In this regard, commercial banks are working on instituting more effective credit risk management practices. Of course, upward adjustments in commercial bank lending rates negatively impacts on the cost of extending credit to customers. High NPLs negatively impact on the bank’s capital adequacy as well as liquid asset quantity of the bank’s total asset position,” Zimba stated.
“Banks have continued to extend credit support to individuals, corporates and other productive sectors of the economy despite the elevated credit risk, and constrained economic pressures, that have had an impact on availability of liquidity. Banks will continue to play their financial intermediator role in the country’s financial services sector. The average nominal commercial bank lending rate rose to 27 per cent in November from 26.7 per cent in October. This reflected the high yields on Government securities, high cost of funds and the upward adjustments on the Monetary Policy Rate. The savings rate for 30-day deposits for amounts exceeding K20,000 rose above 6.6 per cent from 6.4 per cent while the average savings rate for amounts above K100 remained unchanged at three per cent.”
She revealed that the banking sector’s total assets continued to record growth, with assets growing by about K3 billion as at end of November 2019 as compared to October in the same year.
“During the period under review (as at end November, 2019), the banking sector’s total assets grew to K90,027.3 million from K87,359.4 million at end October, 2019. The growth in assets was mainly noted in net loans and advances with the Bank of Zambia and balances with financial institutions abroad, which increased to K1,091.2 million (representing a 4.9 per cent increment) and K491.8 million (representing an increment of 3 per cent), respectively. The sector remained adequately capitalised as reflected by the primary and total regulatory capital adequacy ratios which remained well above the minimum regulatory requirements. The capital adequacy position remains indicative of the sector’s ability to absorb unexpected losses and support balance sheet growth,” Zimba stated.
Meanwhile, the association has urged government to clear arrears to contractors in order to spur economic growth and stability.
“The Association recognises the efforts by the government to contain the fiscal challenges, while focussing on debt service issues for both domestic and foreign debt. It is of equal importance for government to accelerate the dismantling of arrears owed to government contractors to avoid accumulation of new arrears in order to spur economic growth and stability. Banks commit to continue playing their role in supporting the productive sectors of the economy in Agriculture, Energy, Wholesale and Retail, Tourism, Mining, Construction and Logistics and others, in order to help in reversing the slowdown in economic growth,” stated Zimba.