Harare - Zimbabwean banks need to be cautious when lending, said the African Development Bank (AfDB).
In its latest issue on Zimbabwe released on Monday, the AfDB said it was worried with the level of non-performing loans in the Zimbabwean banking sector which reached 12.3% in June against the 5% Basel II prudential guideline for non-performing loans.
The bank was also concerned with the loan-to-deposit ratio, which increased from 86.2% in June 2012 to 87.5% in July 2012. Total bank deposits amounted to $3.70bn in July 2012.
The bank said the loan-to-deposit ratio is considerably high, suggesting that banks have been loaning out a large proportion of the deposits mobilised.
“Increased lending is favourable for the revival of the productive sectors of the economy. However, in view of the prevailing non-performing loans there is need for cautious lending on the part of banks,” said the AfDB.
Another concern for the AfDB is the proportion of bank credit channelled to individuals who largely engage in consumption borrowing at the expense of productive sectors.
“Most of the individual borrowers have used the bank loans and advances for recurrent expenditures, asset purchases, consumer durables and inventory build-up while investment in plant and equipment has remained low.
“In view of this, there is need for banks to use preferential lending treatment in favour of productive sectors of the economy,” said the AfDB.
Commenting on the rise of bad loans, analysts said lack of a credit reference bureau (CRB) is one of the major obstacles that fuel up the rate of defaulting.
The growth of non-performing assets on the balance sheets of Zimbabwean banks has been a huge concern for investors over the last year, while the Zimbabwean government and the Reserve Bank of Zimbabwe are equally concerned.
In South Africa bank non-performing loans to total gross loans was 5.7% as of December 2011. Its highest value over the past 10 years was 5.9% in 2009, while its lowest value was 1.1% in 2006.
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