Banks to remain cautious on lending

HARARE - Zimbabwe's financial institutions are expected to maintain a cautious approach on lending due to a volatile operating environment that has seen electronic balances fluctuate and lose value over the past few months, a local equities research think-tank has said.

IH Securities (IH) said banks, which have taken on Treasury Bills (TBs) to limit their exposure to Real Time Gross Settlement (RTGS) balances are unlikely to be extending a lot of loans in the near future.

“Banks had slowed down on their lending due to the operating environment, however had opted to invest in TBs…

“We believe lending will remain constrained as a result of the current environment,” the research firm said in an equities strategy paper released early this week.

However, IH said asset quality in the sector has improved despite stricter accounting standards which were implemented at the beginning of the year leaving an impact on impairments.

“The banks have managed to remain profitable as a result of non-interest income as they moved to a non-traditional banking model,” the equities analysts said.

This comes as Invictus Capital, a securities advisory firm, recently warned that local banks are thriving under false security as their sovereign paper holdings — now estimated at over $1 billion —pause potential future danger.

“We remain cautious on taking positions in banking counters (given their large TBs holdings) but believe property counters (despite their low yields) present a good hedge against inflation.

“However, improved economic activity bodes well for listed company performance,” the securities advisory firm said.

Interestingly, foreign-owned banks like Standard Chartered Plc’ local unit and Stanbic bank have sought to keep their TB exposure at a minimum.

Government has been issuing TBs to fund its programmes over the past few years as a stop-gap measure since it no longer has access to investment from international financial institutions due to its legacy debt.

The biggest takers of the TBs are banks who have now been left exposed to potential debt of government since it has limited resources.

Econometer Global Capital (Econometer), another local think-tank, also warned that Zimbabwean banks were thriving under false security as their profits are not reflective of a challenging and cashless macroeconomic environment leading to cash rations.

Furthermore, South African research firm, Emergent Africa, also warned the Reserve Bank of Zimbabwe (RBZ) against financing fiscal imbalances using TBs and overdrafts, noting this had negative consequences on the country’s overall macro-economic stability.

“Fiscal imbalances are being financed through issuance of Treasury Bills and overdrafts with the RBZ, with destabilising consequences on overall macro-economic stability.

“As the ministry of Finance and Economic Development acknowledges, the current trend and manner of issuance of Treasury Bills is unsustainable, and has not only led to mounting interest payment obligations, but now threatens macro-economic instability,” the firm said in its Zimbabwe: A Return to Normalcy report released recently.

Emergent Africa said the unrestrained issuance of TBs was unsustainable, regardless of the fact that government has been honouring all its obligations to date. — The Financial Gazette

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