The International Monetary Fund (IMF) has expressed concern over the country’s banking sector, which it says is a credit risk. Analysts say this means that incidents of bad debt in the financial sector are high.
The IMF’s comments reflect the persistent macroeconomic instability which in the past four years has accounted for a 30% decline in gross domestic product and eroded traditional sources of income for the sector.
In a 50-page Staff Report released last Friday as part of the Article IV July visit, the fund said the value of Zimbabwe’s banking sector assets had declined in real terms by 40% as of the end of last year.
“Stress tests indicate that the Zimbabwean banking system is most vulnerable to credit risk, but it is practically immune to changes in the exchange rate as net open positions in foreign exchange are small,” the IMF said.
The report, however, said teh country’s banks continued to show remarkable resilience in the face of adverse macroeconomic developments.
The IMF said non-performing loan ratios in the financial sector were low at 5% as of the end of last year, which reflects a largely negative real interest rate.
“Systemic problems in the banking sector in the next 6-12 months cannot be ruled out. Loan performance is likely to deteriorate if the concessional facilities are curtailed and the general interest rate structure is rationalised,” the IMF said.
“These pressures will need to be carefully monitored and the Reserve Bank of Zimbabwe should be ready to deal with possible failures of individual institutions and avoid systemic risks. In particular, it is essential that provisioning and capital adequacy be monitored on a continuous basis and prudential norms enforced.” – Zimbabwe Independent