LOCAL BANKING SECTOR REMAINS SOUND

MBABANE – The health of the domestic banking sector remains robust, as evidenced by continued strong capital adequacy levels.

According to the Central Bank of Eswatini (CBE) Governor, Dr Phil Mnisi’s annual monetary policy statement, both the industry’s Capital Adequacy Ratio (CAR) and Common Equity Tier 1 (CET 1) ratio increased in Q4-2023, demonstrating the sector’s financial resilience. CAR rose to 18.5 per cent, exceeding the regulatory minimum of 8 per cent by a comfortable margin of 10.5 percentage points. This represents a 0.3 per cent improvement from the previous quarter. CET 1 ratio climbed to 16.5 per cent, exceeding the minimum requirement of 4.5 per cent by a significant 12 percentage points. This marks a 0.5 per cent increase from the prior quarter.

The Eswatini banking sector’s total assets grew by 6.1 per cent year-on-year from E28.3 billion in December 2022 to E30.0 billion in December 2023, while deposits within the banking sector grew by 4.8 per cent during the same period, indicating a slight increase from E20.9 billion to E21.9 in December 2023.  Deposits which are considered the common funding source, continued to entirely fund loans with the loans-to-deposit ratio sitting at 72.7 per cent as of December 2023.

The assessment of Asset Quality revealed a modest decline, with Non-Performing Loans (NPL) exhibiting a slight increase. The NPL ratio saw a marginal uptick of 0.2 per cent, rising from 6.60 per cent in December 2022  to 6.80 per cent by December 2023. This indicates a slight elevation in the proportion of non-performing loans at the close of 2023 compared to the preceding year. The domestic banking sector witnessed impressive profitability advancements in December 2023, with industry after-tax profits marginally increasing by 0.9 per cent year- on-year to E180.3 million compared to the previous year’s E178.7 million.

Additionally, both Return on Assets (ROA) and Return on Equity (ROE) demonstrated positive trends. As of December 2023, ROA climbed to 0.9 per cent indicating improvements compared to the previous year, while ROE reached 4.3 per cent representing a 0.3 per cent decline. Nevertheless, there’s been a marginal uptick in the banking sector’s total cost-to-income ratio. The ratio escalated from 89.7 per cent in December 2022 to 95.1 per cent by December 2023, marking a 5.5 per cent increase.
Of this total, non-interest expenses accounted for 67.7 per cent, while interest expenses comprised only 32.3 per cent. This signifies a notable 33.9 per cent year-on-year surge in interest expenses and a 15.5 per cent increase in non- interest expenses.

These figures underscore the mounting financial burden faced by the banking sector in terms of both funding and operational costs, posing challenges against income generation. The Bank maintains vigilant oversight over the banking sector, bolstering off-site surveillance mechanisms. Banks are mandated to furnish weekly, monthly, quarterly, semi-annual and annual performance returns, facilitating early identification of potential stress points within individual banks and the broader industry.

... resilient liquidity status
The liquidity status within the banking sector exhibited resilience, aligning with the minimum statutory liquidity ratios set at 22.0 per cent for Commercial banks and 20.5 per cent for Development and Savings banks. As of December 2023, the industry’s liquidity ratio stood at 35.4 per cent compared to 37.7 per cent recorded in December 2022. While there’s been a downtrend in the liquidity ratio, it remains comfortably above the minimum regulatory threshold, underscoring the sector’s overall robust liquidity position.

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