- Non-performing loans (NPL) ratio plunged to 7% lowest in past 3 quarters
- NPL ratio improved from 13% in June 2023, and 8% in December 2023
- Reported a 40% YoY surge in total income to US$20.5 million
Harare- Esteemed Bank, First Capital, reports that its non-performing loans (NPL) ratio has continued to decrease, reaching the lowest level in the first quarter of 2024 at 7%. This is an improvement from 8% in December 2023 and 13% in June 2023, following various interventions undertaken and ongoing, such as sectoral redistribution to improve overall asset quality.
As a result, the bank's loan book increased by 15% to US$91 million during the period, from US$79 million recorded in Q12023.
A non-performing loan is a loan that is in default or close to being in default, where the borrower has not made their scheduled payments for a sustained period, usually 90 days or more.
The Ghanaian banking crisis in 2010 led to the collapse of several indigenous banks due to high NPL levels, often exceeding 20% of their total loan portfolios. Meanwhile, major Kenyan banks, such as KCB Group and Equity Group, have reported NPL ratios ranging from 8% to 12% at various points, driven by factors like drought, political uncertainty, and high exposure to risky sectors.
In Zimbabwe, high NPL ratios are attributed to rapid devaluation of the local currency, exorbitant benchmark interest rates, and higher unemployment levels, which can cause borrowers to default on payments.
High NPL levels can strain a bank's balance sheet and profitability, as they must set aside loan loss provisions to cover potential defaults. Banks employ strategies to address NPLs, such as restructuring or renegotiating loan terms, selling loans to distressed debt investors, or writing them off entirely.
During the period, First Capital's total income, before once-off fair value adjustments, for the first quarter of 2024 grew by 40%, reaching US$20.5 million from US$14.6 million in the same period of 2023.
This was driven by strong performance in both net interest income and non-funded income.
However, cost pressures remained elevated, with operating expenses rising by 12% to US$10.4 million compared to the same period in 2023.
The bank stated that a "rigorous rationalisation and optimisation exercise is currently underway to curtail cost expansion."
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