Zimbabwe: Loan impairments on the rise, says RBZ

Jun 30, 2015

It said an increase in impairment charges is to blame.

Fresh data from the Reserve Bank of Zimbabwe (RBZ) has revealed a rise in loan impairments,
as the country's economy remains sluggish.

Loan repayments remain a challenge, and this has fuelled fears that banks may cut back on lending critically needed to reboot the economic sectors, according to the newspaper The Standard.

The RBZ said that a decline in aggregate net profit was recorded during the first three months of the year. They were down 18 per cent between March 2015 and March 2014. RBZ said the decline in aggregate profit was due to an increase in loan impairment charges.

MMC Capital research analyst Kudzanai Samudzi told The Standard impairments went up because the capacity of borrowers to repay loans was waning as the obtaining environment remained a challenge.

"Banks under normal circumstances expect a certain portion of their loan book to underperform, hence formulating provisions for bad debts. As borrowing quality deteriorates, more provisions will be made and more impairment charges [bad debts] will be posted to the income statement," he said.

"There is an urgent need to siphon out a greater portion of bad loans in all the banks, hence creating a much cleaner consolidated balance sheet for the local banking sector. This development will be key in reducing risks," he added.

The central bank said credit and liquidity risks remained the major risk facing the country's banking sector, with the average non-performing loans to total loans ratio declining to 15,19 per cent in March 2015 from 15,91 per cent in December 2014.ADNFCR-2976-ID-801792766-ADNFCR