PHILLIMON MHLANGA
Despite the disruptive impact of the deadly Covid-19 pandemic, local banks delivered profits much higher than expected in 2020, driven by non-interest income which handsomely bolstered their income, Business Times can report.
Profit for the banking sector hit ZWL$34.2bn in the reviewed period from ZWL$6.4bn reported in 2019.
After realising that earned interest from loans, which is their core business, would be lower than expected following a decision by the central bank to slash interest rates in 2020, severe headwinds brought by a slowing economy, on top of withering industries, the lenders needed to diversify their income sources following dwindling interest income with profit margins squashed.
They turned to fees and commissions to drive their growth.
Despite the weakness in interest income, strong growth in non-interest income, which contributed about 80% of total income during the reviewed period, ensured profit grew to ZWL$34.2bn in the 12 months to December 2020.
“During the year ended 31 December 2020 all banking institutions were profitable, with aggregate banking sector profits for the period of ZW$34.2 billion, an increase from ZW$6.4 billion reported for the corresponding period in 2019,” Mangudya said in his 2021 Monetary Policy Statement.
He added: “The growth in income is largely attributable to non-interest income which constituted 79.5% of total income. Non-interest income mainly comprised other non-interest income (translation gains on foreign currency denominated assets, revaluation gains from investment properties) as well as fees and commissions.”
He said banking sector profitability as measured by the return on assets and return on equity ratios improved to 13.6% and 45.5% respectively as at December 31, 2020 from 9% and 33% as at December 2019.
The banking sector’s core capital increased to ZWL$40.85bn at the end of last year from ZWL$20.99bn as at June 30, reflecting an increase of 94.08%.
Growth was mainly attributed to retained earnings increase, bolstered by revaluation gains from foreign exchange denominated assets and investment properties.
Mangudya said capital positions remained strong with the banking sector average capital adequacy and tier 1 ratio of 34.6% and 22.7% as at December 31, 2020, were above the regulatory minimum of 12% and 8%, respectively.
Total banking sector deposits increased by 114.5 % from ZWL$97.40bn reported as at 30 June 2020, to ZWL$208.9bn as at 31 December 2020, Mangudya said.
He added that despite the negative impact of Covid-19 on different sectors of the economy, the banking sector, which has a total of 19 banking institutions comprising 13 commercial banks, five building societies, and one savings bank has demonstrated resilience to various shocks, reflected by the satisfactory performance last year.
