THE local banking industry is likely to stay in good form this year, but emerging worldwide risks pose threats, especially to opening up new credit lines.
The sector has been frantically working on unlocking new lines of credit to financemainly the private sector and ensuring protection of shareholder value at a time when the segment has been losing correspondingbanking relationships.
As the economy continues to experience difficulties, Bankers Association of Zimbabwe (BAZ) president Lawrence Nyazema this week told businessdigest that the performance of the banking sector was inexorably linked to the performance of the economy.
Nyazema said while there may be little room for new entrants into the sector, there are opportunities to create larger and stronger institutions that can match regional and continental levels through mergers and acquisitions.
However, he pointed out that the projected slowdown in overall global economic growth rate from 3,0% in 2023 to 2,9% in 2024 and that for the domestic economy from 5,5% to about 3,6%, over the same period, implies that the banking sector may be faced with fewer opportunities in 2024 when compared to 2023.
“Global interest rates are expected to remain at multi-year high levels, implying that the cost of externally sourced credit lines will also remain elevated, thereby reducing the ability of banks to offer favourably priced credit or loans to their customers,” he told businessdigest.
“Constrained liquidity flows coupled with the high interest rates are the potential reduction in global liquidity flows as investors, unsettled by recent sovereign debt distress and defaults and failed debt restructurings, may cut back on funds flows to emerging and developing markets.
“Again, this will make it difficult for the banking sector to mobilise favourably priced credit lines for on-lending to the rest of the economy,” he said
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According to Nyazema, the strong, inverse relationship between interest rates and precious metal prices became more pronounced during the last quarter of 2023, with platinum prices falling below the average cost of production for some mines.
He said high interest rates will, therefore, perpetuate depressed commodity prices, pausing viability challenges for some of the players in the mining sub-sectors that are directly impacted by the low commodity prices.
Subsequently, this will translate into reduced business potential and opportunities for the banking sector.
“However, the direction and magnitude of the impact on the banking sector is largely ambiguous given that some of the challenges associated with the El Nino weather conditions may potentially give rise to new opportunities for both industry in particular and the banking sector in general,” he said.
“The banking sector will also be affected, both directly and indirectly, by the ongoing global economic reset, including the disruptions to, and reset in, the global supply chains.”
The expansion of economic blocs such as the Brics is also seen to disrupt existing, and at the same time create new, economic diplomacy relations leading to changes in trade relations and agreements and ultimately changes in the direction of capital flows.
The BAZ president said the Brics' New Development Bank may begin to offer notable alternative funding solutions for sovereigns and other financial institutions, thereby positively impacting the flow of capital amongst developing countries.
“However, what is encouraging is that the projected growth rates for 2024 remain largely positive, implying that there will still be economic expansion during the year 2024,” he noted.
“In fact, the expansion of operations by existing, as well as commencement of operations by new, companies especially in the mining sector presents opportunities for the banking sector, particularly for players with large balance sheets that can allow underwriting of big-ticket transactions.
“Additionally, the ongoing transition towards greener economies will also present new opportunities, for example, for financing the transition to net zero.”
According to the central bank, the performance of the banking sector remained satisfactory as evidenced by strong capital and liquidity positions above the regulatory minimums, low levels of non-performing loans of 2,3% against a global benchmark of 5% and satisfactory earnings performance.
