So far this year, one bank has been placed under curatorship and another voluntarily surrendered its licence. The sovernment believes that the recent bank failures call for the consolidation of the banking sector and the strengthening of governance in the sector.
No confidence
According to the budget review, the current vulnerabilities in the sector have eroded confidence, particularly in smaller banks, resulting in a flow of deposits to bigger banks.
This has resulted in deposits becoming unevenly distributed, with four out of the 25 banks holding more than 60 percent. While several weak banks have met the capital requirement, credit risks remain high, particularly for small banks that have low capital buffers.
The asset quality has also deteriorated, which reflects the unsoundness of the lending practises and poor risk management. It is also worrisome to note that non-performing loans have significantly increased from 1.7 percent in March 2010 to 9.9 percent in June 2012, against the internationally accepted Basel II threshold of five percent.
Biti says this raises concerns over quality of corporate governance and effectiveness of supervision within the financial sector. To that end, the government is finalising amendments to the Banking Act that will focus on improving oversight and surveillance over the financial sector by the Reserve Bank.
Overall go slow
The budget review also stressed that although nominal bank deposits continued to improve, during the first half of the year, the growth in these deposits has softened, reflecting an overall slowdown in economic growth.
Deposits, which were growing by an average of three percent per month, reached $3.58 billion by 30 May 2012, from $3.1 billion in December 2011.
The interest rates on deposits were noted to be low during the first three months, with savings rates averaging about 2.65 percent, 10.7 percent for one month deposits and 12.4 percent for three months’ deposits.
However, the start of the second quarter upped competition, to attract deposits, and interest on deposits marginally increased to a monthly average of 3.4 percent, 12.6 percent and 13.2 percent for savings deposits, one-month deposits and three-month deposits, respectively.
The lending rates, on the other hand, which opened the year relatively high, slightly softened from an average of 13.6 percent to 9.5 percent and 19.7 percent to 15.2 percent for commercial and merchant banks, respectively.
Post published in: Business