A steep rise in bad and doubtful debts has forced local banks to increase provisions for impairments as severe economic and financial stress casts serious doubt over the capacity of many retail and corporate borrowers to fulfill their loan obligations, Business Times can report Soured loan charges at several banks reached unprecedented levels in the six months to June 2020 In fact, they have soared to levels not seen since 2009, when Zimbabwe dollarised to escape hyperinflationary pressures This means provisions for bad debts are expected to raise credit costs, something which will limit banks’ profits and ability to lend going forward
The projected cutback on lending will be a blow for local companies that require some funding to reboot after they were affected by Covid-19 restrictions It also comes at a time when banks are now operating under a new accounting standard, the International Financial Reporting Standard (IFRS) 9, which compels them to measure expected credit losses and provide for them Previously, banks were only looking at “incurred losses”, which meant banks made provisions for loan losses only when borrowers actually missed payments Under IFRS 9, banks are required to make provisions based on a loan’s lifetime value
Among the half years of financial results published recently, CBZ Bank stood out The lender’s total loans stood at ZWL$10.1bn in June this year, from ZWL$6.5bn in December 2019 But, it’s credit loss expense on loans and advances jumped more than 10 times to ZWL$431.8m for the period that ended June 30,2020 compared to ZWL$30.6m in June last year That was an increase of more than 1 300%
And the closing allowance for expected credit loss was ZWL$576.7m Analysts who spoke to Business Times this week said the amounts banks were losing as borrowers default and their loans have to be written off Amounts written off by CBZ in the six months to June 30,2020 amounted to ZWL$23.8m ZB Bank also reported a sharp increase in loan impairments which stood at ZWL$79.4m at the end of June this year from ZWL$29m in June last year
Source: Business Times
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Source: Businesstimes
