GOVT SECURITIES AT E3.1 BILLION

MBABANE - The uncertainty caused by COVID-19 has weighed heavily on both corporate and personal lending activity, paving the way for government securities, reaching E3.1 billion in 2020. 

Securities are fungible and tradable financial instruments used to raise capital in public and private markets and in the era of COVID-19, they are perceived to be much safer. According to the Central Bank of Eswatini Financial Stability Report,  at the end of June 2020, banking sector assets stood at E21.9 billion, increasing by 7.7 per cent year-on-year.

Loans and overdrafts decreased by 1.7 per cent, settling at E11.8 billion at end June 2020. It was revealed in the report that loans and advances represented 49.8 per cent of assets, showing a movement away from lending.

“The same was experienced in the balances held with the Central Bank, which grew by 31.2 per cent to a total of E3.0 billion. In addition, investments and other securities increased by 40.9 percent during the year to settle at E1.7 billion and deposits amounted to E16.9 billion at end June 2020, experiencing a 10.5 per cent growth. Total shareholders’ funds grew by 2.8 per cent during the quarter to stand at E3.3 billion,” reads the report in part. 

The CBE reported that the first half of 2020 was marred by the evolution of the COVID-19 pandemic and the impact of this virus on the banking sector was guaranteed to be negative, but its magnitude and timing was dependent on many variables. It was also revealed that developments in the banking sector were a result of both seasonality and COVID-19. 

Earnings 

It was further unpacked that banking sector earnings and profitability were adversely affected during the year ending June 2020 and the average return on banks’ total assets (ROA) and on total equity (ROE) fell from 2.6 per cent and 16.5 per cent respectively at the end of June 2019 to 1.5 per cent and 10.3 per cent respectively, in June 2020. 

“During the year, interest income from loans and advances fell by 10.9 per cent while interest paid on deposits increased by 4.8 per cent. The cut in interest rates has had a negative impact on the sector’s profitability due to the difference in repricing. This is evidenced by the fall in the interest margin from 6.7 per cent to 5.8 per cent during the period under review,” read the report. 

Also highlighted was that interest income from loans and advances was reduced, while interest paid on deposits was not reduced at the same rate due to concentration and bargaining power of depositors. This has weighed heavily on the net interest margin. The cost-to-income ratio also worsened, increasing to 82.8 per cent in June 2020 from 72.8 per cent in June 2019. 

On average, banks’ operating expenses accounted for 55.1 per cent of total income, rising from 49.2 per cent of the previous year. This is a result of increasing inflation and reduced economic activity due to the COVID-19 pandemic. The sector’s after-tax profits decreased by 36.0 per cent, reaching E335.5 million for the year ended 30 June 2020.

During the year under review, the bank issued the Regulation of Banking Fees and Charges (Amendment) Legal Notice, 2019. This legal notice allows banks to charge up to E30 000 per day and a maximum of one per cent of amounts in excess for small and medium enterprises’ business accounts and unprescribed and negotiable for corporates accounts. 

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