By BUUMBA CHIMBULU
COVID-19 modified loans for the banking industry last year hit over K3 billion, thereby threatening the sector’s capital adequacy which is currently stable, the bankers have said.
The sector’s capital adequacy position between January and September 2021 remained under threat of the high stock of Covid-19 modified loans K3.01 billion, says Bankers Association of Zambia (BAZ) Public Relations Officer, MirriamZimba.
She explained that if materialised into Non-Performing Loans (NPL) and a full loan loss provision is taken could weaken the Primary Capital Adequacy Ratio and the Total Regulatory Capital Adequacy to 16.9 percent and 18.5 percent respectively.
“The Covid-19 continues to pose serious health and economic challenges, with the new variant and threat of a fourth wave. The negative impact of the pandemic on our economy and economic recovery cannot be over-emphasised,” Ms Zimba said in response to a press query.
Ms Zimba however said asset quality was rated satisfactory as the NPL ratio dropped to 6.9 percent and remained within the prudential threshold of 10 percent.
She explained that the reduction in the NPL ratio was mainly on account of the decrease in gross risk inherent in the stock of Covid-19 restructured loans which stood at K3.01 billion, and accounted for 6.5 percent of gross loans.
Ms Zimba stated that the sector’s capacity to absorb potential loan losses as a measure by the NPL cover ratio, improved to 92.3 percent from 77.9 percent and exceeded the prudential minimum benchmark of 80 percent.
She explained that the liquidity condition of the banking sector during the quarter under review remained favourable.
According to Ms Zimba, the satisfactory liquidity condition was also reflected by the high liquidity ratio of 52.7 percent, which was indicative of high stock of liquid assets relative to deposits and short-term liabilities.
“At the end of September 2021, the banking sector balance sheet contracted by 10.6 percent to close the quarter at K152.57 billion largely driven by the impact of the foreign exchange rate appreciation between the second and third quarter of the 2021.
“In the quarter under review, the sector’s profit before tax (PBT) of K2.37 billion was higher than the previous quarter PBT by 26.5 percent. Both interest income and non-interest income were higher and explained the increase in the profit,” Ms Zimba said.
She also said the financial performance and condition of the banking sector as at 30th September 2021 remained satisfactory.
“The favourable rating was driven by the satisfactory capital adequacy position that was anchored on stable profitability which contributed augmentation capital through retained earnings,” Ms Zimba said.
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