By Slindzelwe Nxumalo | 2022-06-23

Outgoing Central Bank of Eswatini (CBE) Governor Majozi Sithole has said the country’s banking system has remained robust with a 2.69 per cent year-on-year growth in assets.

The total assets amounted to E25.7 billion in December 2021 compared to E25.1 billion in December 2020.

Sithole said this in his 2022 Governor’s Annual Monetary Policy Statement. ?Sithole said this was achieved despite the prevalence of the COVID-19 pandemic during 2021.
“Banks were compliant with all minimum regulatory requirements. Tier 1 capital and the total Capital Adequacy Ratio (CAR) stood at 15.7 per cent and 17.9 per cent in December 2021, well above the minimum statutory requirements of  six per cent and eight per cent, respectively,” he said.

difficulties

He added that despite the prevalence of the COVID-19 pandemic during 2021, the banking system remained robust with a 2.69 per cent year-on-year growth in assets.

He also mentioned that despite lending difficulties that were faced by the banking sector in 2021 which were due to COVID-19, loans and advances grew by 3.0 per cent in 2021 from E12.9 billion in December 2020 to E13.3 billion in December 2021.

“The difficult economic situation had an impact on the performance of loans as non-performing loans increased from 5.4 per cent in 2020 to 6.8 per cent in December 2021,” he said.  He said Eswatini banks had finalised an impact analysis of inspection to determine how effective the policy intervention was and a decision was made to revoke Inspection Circular No.1 of 2020 effective March 31, 2022.?He explained that the revocation was influenced by the feedback they got from banks on how COVID-19 impacted on their banking book credits as it had been minimal.

“More importantly, a greater percentage of COVID-19 affected obligors granted relief measures has recovered and their accounts regularised and currently performing well,” said Sithole.

stability

He said it was noted that prolonging the life of the Inspection Circular would undermine credit discipline, create moral hazard and adverse selection problems for the sector and threaten the stability of the banking system. 

“Loan rescheduling and restructuring is a common banking practice, and banks were implored to accommodate new and/or recurring applications for loan term modification from their customers,” he said.  Sithole mentioned that it should be noted however, that the revocation of the Inspection Circular did not affect the current minimum liquidity and cash reserve requirements as prescribed in Circular No. 1 of 2020.

“These will be maintained until further notice and banks are therefore implored to utilise the relaxed requirements and improve credit intermediation in the sector,” he said.

He further added that deposits marginally increased from E20.6 billion in December 2020 to E20.7 billion in the same period in 2021, reflecting an increase of 0.9 per cent. “Deposits which are considered the cheapest funding source, continued to entirely fund loans with the loans-to-deposit ratio sitting at 64.0 per cent as at December 2021,” he said.

Sithole explained that profitability indicators of the banking industry showed a slight improvement in 2021 and this could be attributed to asset management practices by the banks which ensured continued profitability of the banking sector despite the prevalence of the pandemic.

 He further added that total industry after-tax profit increased by 42.5 per cent from E341.7 million in 2020 to E486.1 million in December 2021 while the cost to income ratio slightly decreased from 64.4 per cent recorded in December 2020 to 64.3 per cent recorded in December 2021. “This meant that banks were able to contain costs during the period under review while increasing profits,” he said.

Sithole said banks continued to be closely monitored through the strengthening of the off-site surveillance in which they are required to submit weekly, monthly, and quarterly performance returns which allowed for early detection of stress in the institutions and the industry as a whole. “The banks were in compliance with the liquidity requirements level with the industry recording 37.0 per cent in December 2021.

The prescribed minimum liquidity requirement is 20 per cent for the commercial banks and 18 per cent for the development banks,” he said.

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