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THE average ratio of non-performing loans (NPL) to total aances rose marginally in three months to March as the weak economy militated against borrower’s ability to repay.

However in spite of this, banks made a profit in the period at $20,47 million, which five-times surpassed the whole of last year’s profits of $4,46 million following the removal of the MoU on bank charges late last year.

NPL to total loans increased to 17 percent in the quarter to March from 16 percent as at December 31 last year, the Reserve Bank said in its latest banking sector quarterly report. Loans and aances for the quarter stood at about $3,64 billion.

“This trend is partly a reflection of macroeconomic challenges that have militated against borrowers’ ability to service loans,” said the central bank.

At the end of the quarter, banking sector was capitalised to the tune of $909 million and $755 million in terms of net capital and core capital respectively, compared to $933 million and $784 million as at 31 December 2013.

Core capital diminution was largely attributed to losses incurred by the non compliant banks during the quarter.

A total of 14 out of 20 operating banking institutions were in compliance with the prescribed minimum capital requirements.

The compliance levels are the same as at December 2013.

The RBZ said non-compliant banks were taking various measures to regularise their capital positions which are at different stages of implementation.

“The banking sector remained adequately capitalised during the period ended 31 March 2014,” said the central bank adding that one banking institution has already surpassed the $100 million minimum capital requirement which is effective 2020.

Of the loans and aances, commercial banks accounted for 92,73 percent of total banking sector loans and aances.

The top five banks had loans and aances amounting to $2,12 billion which accounted for 60 percent of the total loans.

The central bank noted that lending portfolio was skewed towards consumptive lending at the expense of productive sectors of the economy. In terms of financial performance, the sector was profitable, with an aggregate net profit of $20,47 million up from $4,7 million during the corresponding period in 2013. A total of 16 banks recorded profits.

“Generally, banks that recorded losses lacked critical mass to generate sufficient revenue and cover operating costs,” said the RBZ.

“The losses were mainly attributable to credit impairment in a market characterised by increased loan delinquencies, balance sheet structures which are skewed towards non-interest earning assets, largely a reflection of non- liquid capital, high funding costs and operational expenses.”

Deposits continued to be dominated by demand deposits which accounted for 57,92 percent of total deposits.

In terms of concentration, the commercial banking sub-sector dominated the market for deposits, controlling 84 percent of deposits.

Source : The Herald