RBZ Capitalizes Banks With 35,45% Adequacy Ratio Above 12% Regulatory Limit

Reserve Bank of Zimbabwe Governor, Dr John Panonetsa Mangudya has deliberately capacitated all local banks adequately with a 35,5% ratio above regulatory limit of 12%.

RBZ Governor Dr Mangudya revealed to TechnoMag that, “The growth was largely attributed to the translation of foreign currency-denominated loans amounting to $704,71 billion, which constituted 68,97 percent of total banking sector loans.

The Governor added that, “Loans to the productive sectors constituted 76,29 percent of total loans as at September 30, 2022.

“Banks have also seen the percentage of non — performing loans (NPLs) cooling off from a three — year high in the quarter ending September 30, 2022.”

An Economist commentator said, “The quality of loans remained satisfactory as reflected by the non-performing loans to total loans ratio of 1,4 percent, against the generally accepted international threshold of 5 percent.”

What it means is indeed Zimbabwe banks are adequately capitalised with an average capital adequacy ratio of 35,45 percent, the highest in two years and above the regulatory limit of 12 percent, even according to Dr Mangudya’s latest banking sector report.

Averagely, capitalisation levels are double the required limits, according to the Mangudya’s bank’s banking sector report for the third quarter of 2022.

These Capital requirements are standard regulations for banks and other depository institutions to determine how much liquid capital must be held against a prescribed value of assets.

Be that as it may, there has been an upward trend in the banking sector capital adequacy ratios, as core capital increased due to improved profitability by banking institutions over the period ending September 30, 2022.

With the current regulations, all tier 1 banks must have a minimum capital of US$30 million.

This means Commercial banks, merchant banks, development banks, finance, and discount houses in the tier 2 category are required to have a minimum capital equivalent of US$20 million while deposit-taking microfinance institutions must have an equivalent of US$5 million.

One banker said the banking sector has “good liquidity indicators as shown by an average liquidity ratio of 59,51 percent well above the stipulated benchmark of 30 percent”.

“These factors are critical for banks to underwrite significant business and to support the envisaged average economic growth of above 3 percent.”

Nevertheless, the liquidity ratio has been on a declining trend from a high of 74,85 percent in June 2020 as banking institutions are increasing their lending, as reflected by the gradual increase in the loans to deposits ratio from 44,16 percent in March 2021 to 52,83 percent for the period under review.

A renowned Economist also added his voice, adding that the capitalisation levels would help ensure stability in the financial sector while creating sustainable financing.

Therefore, Banks have been increasing support to productive sectors of the economy with total banking sector loans and advances for the quarter, increasing to $1,1 trillion from $603,14 billion as at June 30, 2022.