Agriculture accounts for a majority of banking sector lending in the first quarter

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The agricultural sector received the largest share of banking sector loans in the three months to March 2022 as banks continued to focus more on lending to the productive sector to mitigate risk.

Fluctuations in exchange rates, which caused the local currency to depreciate, made things difficult for the lenders, since over 55 percent of the loans disbursed were in the highly volatile local currency.

Zimbabwe expects gross domestic product to grow 5.5 percent this year on strong performances in the agriculture, mining and manufacturing sectors.

According to the Reserve Bank of Zimbabwe’s (RBZ) latest Banking Sector Industry Report for the first quarter (Q1), 77.3 percent of total credit went to the productive sectors of the economy, versus 19.04 percent that went to consumption.

Of the 77.3 percent of the productive sector, agriculture received the bulk of the disbursement at 25.61 percent, followed by manufacturing at 11.60 percent.

Most banks consciously lean towards financing agriculture, which was seen as a very viable option given the volatility of the economy. This is further supported by gains in agricultural production over the past year, which have given a positive feeling that producers in the sector have the capacity to pay back.

The quality of the banking sector’s loan portfolio remained strong, as reflected in the non-performing loans (NPLs) to total loan volume ratio of 1.57 percent as of March 31, 2022, versus the international benchmark of 5 percent.

Profit for the period was $27.05 billion, compared to $6.58 billion for the corresponding period in 2021, which the central bank attributed to interest income on loans, advances, and fees and commissions that 34, 36 percent and 30.32 percent of these accounted for total income and

Total banking sector deposits for the first quarter were $582.26 billion, up 22.23 percent from the $476.35 billion reported as of December 31, 2021.

The average regulatory liquidity ratio for the banking sector of 61.38 percent as of March 31, 2022 was above the minimum regulatory requirement of 30 percent, reflecting the high level of liquid assets in the sector.

“As part of the measures to strengthen the stability of the banking sector, the bank is implementing a number of measures to boost confidence in the economy, deal with market indiscipline, stabilize inflation and exchange rates, and create a favorable environment to support the targeted rate of economic growth for 2022,” according to the RBZ.

As of March 31, 2022, there were 19 operating institutes, including 13 commercial banks, 5 building societies and 1 savings bank. In addition, there were 179 lending-only microfinance institutions, 8 licensed deposit-taking microfinance institutions and 4 development finance institutions under the Bank’s jurisdiction.

Banking sector assets were $969.24 billion, an item representing a 27.04 percent increase from $762.96 billion as of December 31, 2021.

Financing costs remain relatively high, however, as the bank lending rate was 80% at the time and has since been raised to 200%.

Experts say high interest rates are hampering this year’s farming season and could also lead to high defaults.

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