Mbabane: The banking system remains sound and stable during the year 2021. As at the end of June 2021, the banking sector’s assets stood at E27.1 billion, increasing by 23.8 percent year on year. Loans and overdrafts increased by 12.3 percent, settling at E13.3 billion as at the end of June 2021. Loans and advances represented 49.1 percent of total assets, remaining a major portion of banking sector assets. There was a 39.4 percent growth in the holding of government securities, reaching E4.3 billion during the year under review.
The banks complied with minimum capital requirements, though marginally falling from the previous year’s position. Banking sector earnings and profitability showed some improvements during the year as lockdown restrictions eased up. Banks’ asset quality improved during the year, buoyed by the COVID-19 relief measures. In addition, banks increased their investments in low-risk liquid assets during the year, which ultimately minimized liquidity risk.
The same was experienced in the balances held with the Central Bank, which grew by 24.1percent to a total of E3.7 billion. Deposits amounted to E21.7 billion as at the end June 2021, experiencing a 28.7 percent growth. Total shareholders’ funds grew by 2.9 percent during the year under review to stand at E3.4 billion.
The banks’ capital level was maintained well above the minimum capital requirements as at end June 2021. There was, however, a year-on-year decrease in the level of capital due to the payment of dividends by banks coupled with a general increase in risk-weighted assets. The average industry-wide regulatory tier 1 capital adequacy ratio and total capital adequacy ratio stood at 13.8 percent and 16.0 percent respectively, decreasing from the previous year’s positions of 14.6 percent and 17.0 percent respectively. The leverage ratio also fell from 10.7 percent to 9.9 percent.
After a period of slump, the capital adequacy index improved during the third quarter of
2020 when the economic activity began to pick up, and was relatively stable over the next two quarters. However, the index worsened during the quarter ending June 2021.
This was attributable to dividend payments, which reduced aggregate capital. In addition, the stock of non-performing loans (NPLs) increased by 8.8 percent during the quarter ending June 2021, thereby increasing the capital at risk due to lending. Economic activity has been improving; however, it is not yet back to full potential and thus has limited profitability and subsequent capital build-up.
Banking sector earnings and profitability showed some improvement during the year ending
30 June 2021 as lockdown restrictions eased up. The average return on banks’ total assets
(ROA) and on total equity (ROE) improved from 1.5 percent and 10.3 percent respectively at the end of June 2020 to 1.6 percent and 12.5 percent respectively in June 2021. During the year under review, income from interest on loans and advances fell by 7.7 percent while the interest paid on deposits fell by 13.5 percent.
The cost-to-income ratio also known as the efficiency ratio improved, falling from 82.8 percent in June 2020 to 78.8 percent in June 2021. On average, banks’ operating expenses accounted for 53.6 percent of total income, down from 55.1 percent in the previous year. The sector’s after-tax profits increased by 25.6 percent, reaching E421.5 million for the year ended 30 June 2021.
NPLs to total loans ratio stood at 5.6 percent as at end June 2021. Total NPLs fell from E1.1 billion to E745.9 million during the year under review.