The rate of non-performing loans within banks reporting financial results consistently could increase to 20 percent by year-end from 10,8 percent, but banks may not suffer any capital losses, an equities report says.
While NPLs may rise, the report, however, found out that 40 percent of the loans in the sector's NPLs rate were accounted for by financial institutions currently either under curatorship or in the process of liquidation.
The overall or official sector NPLs rate stands at 15,9 percent while IH said that its 10,8 percent rate was based on institutions with an NPLs coverage ratio of 44 percent.
But even then, IH said, its NPLs rate of 10,8 percent for the banks included in its research sample, remained too high compared to trends in the region.
"A non-performing loans ratio of 10,8 percent is still high from a regional perspective, however, and has necessitated higher impairment charges," IH said in report.
NPLs, according to the
To that end, the research found out that banks are moving towards targeting, predominantly, high quality clients with a better probability of repaying loans advanced.
The banking sector is reportedly clearing out banks with weak corporate governance, least robust risk management systems and insufficient clout to manage risk.
In the same vein, amendments to the Reserve Bank Act are anticipated to minimise risk by reducing the potentially corrosive effect of domineering owner managers by limiting shareholding to 5 percent for individuals and 25 percent for institutional shareholders.
According to the
Non-performing loans, IH said, wiped away about 12 percent of the total operating income of banks in 2013 and their effect was anticipated to be worse this year.
"Our bear case assumption for the banks in our sample, which are banks that have been reporting financial results consistently, is for NPL ratios to rise from 10,8 percent to 20 percent in 2014," the report added.
Banks' operating total income, under IH's bear case scenario, is seen static at
The research report's bear case assumption for operating income before impairments was that the sector could achieve no growth in 2014, remaining at the
"Our bear case estimate of profit before tax, therefore stands at
"This would suggest that the core of the banking sector, once we ignore the banks that are already under curatorship or in the process of liquidating, is unlikely to register capital losses in 2014," IH's report said.
However, the IH report said while there was no likelihood of any near-term recapitalisation pressure, increased capital levels remained significantly prudent.
According to RBZ, about a third of banks are yet to comply with regulatory minimum capital requirements of
NPLs net of provision were approaching about 25 percent of capital for the banks in IH's sample, which compares to figures as low as 3,5 percent in
IH said that this was partly an NPL coverage issue, with banks having low NPL coverage ratios in relation to other sectors in the region
IH's research report noted that the banking sector could hold less risky assets beyond the next twelve months on the back of cleansing happening in the sector.
Most Popular Stories
- GE Healthcare Bringing Jobs to Massachusetts
- Hispanic NASCAR Driver Ready to Make History
- Faith Groups Divest From Fossil Fuels
- James Foley Beheading Video Is Real Thing: White House
- James Foley Killer Could Be ID'd Via Social Media, Voice Recognition
- Bank of America Agrees to Pay Record $16.65 Billion
- Apple Stock Bounces Back Big Time
- Entrepreneur Contest Announced in Idaho
- Stocks Moving Higher Again for 4th Day
- U.S. Existing Home Sales Rise 4th Month Straight