Zimbabwe Banks Threatened by Bad Loans as Economy Deteriorates

Zimbabwe’s banking industry is threatened by bad loans that are being compounded by the southern African country’s deteriorating economy, according to IH Securities.

Non-performing loans climbed to 15.9 percent at the end of last year, from 4 percent 12 months earlier, as asset quality deteriorated, Harare-based IH Securities said in an e-mailed note to clients dated May 28. Stripping out banks under curatorship or in the process of liquidation, the figure was 10.8 percent, it said.

“The key threat to the Zimbabwean banking sector, as we see it, is the high levels of non-performing loans,” IH Securities analysts said. “We see the stagnation of the economy placing a floor on the level of NPLs as the overall quality of assets in the country deteriorates.”

There are 22 banks operating in Zimbabwe, including units of London-based Standard Chartered Plc (STAN) and Barclays Plc (BARC), and South Africa’s Standard Bank Group Ltd. Many institutions are being forced to set aside higher provisions for bad debt, which is cutting earnings, IH Securities said.

Zimbabwe retail sales fell 30 percent in February from the previous month, while 15 factories in the metals and engineering industries closed in the period, the Finance Ministry said in its monthly report. Consumer prices declined for a third consecutive month in April, reflecting depressed demand.

“This places additional pressure on funds available to service loans,” IH Securities said. “The environment therefore places upward pressure on NPLs and limits the extent to which the sector can improve asset quality.”

President Robert Mugabe, in power since 1980, won re-election last year. His ZANU-PF party, which captured two-thirds of parliamentary seats, is trying to revive an economy that was 49 percent smaller last year than it was in 2000, according to ZimTrade, a state agency that promotes trade and investment.

To contact the reporter on this story: Godfrey Marawanyika in Harare at gmarawanyika@bloomberg.net

To contact the editors responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net Dylan Griffiths, Jon Menon

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