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In spite of depression woes, S’Africa’s banking system gets stable outlook

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It may not all be sad for news for South Africa’s economy which has just fallen into depression.

Moody’s has changed its outlook for the country’s banking system from negative to stable, the ratings agency said in a report issued on Tuesday.

In its report, Moody’s said the banks’ creditworthiness would remain resilient over the next 12 to 18 months, although they will face weakening operating conditions.

“Slow economic growth will hold back the banks’ new business and revenues,” the report read.

Economic growth is expected to remain weak given poor consumer spending, volatility in emerging market currencies as well as inflationary pressures. Moody’s recently cut the growth forecast for 2018 from 1.5% to between 0.7%.

Moody’s said SA bank credit risk profiles and problem loans would remain stable until the end of 2019. Capital is also expected to remain strong for the period. Further, funding and liquidity conditions will be stable.

However a challenging operating environment will suppress business opportunities and loan demand, exerting pressure on banks’ loan quality. Loan growth slowed to 2.1% in May 2018, compared to 2.5% in May 2017, according to Moody’s.

“We expect growth to remain subdued in 2018/19 because of weak demand, particularly as growth in mortgage loans has slowed. We also believe that banks have further tightened their lending criteria in response to the weak economy, which will further dampen loan growth by making it harder for borrowers to take on new credit,” Moody’s explained.

Read also: Nigeria may be headed for another recession as economy slows in Q2 2018

The lower loan growth is likely to impact net interest income. Increased costs for staff and digitalisation will also drag down net profitability, the report said.

Overall, earnings will be strained by slower revenue growth and higher operating expenses.

Although profitability has remained resilient, the low economic growth, rising competition from larger banks and fintechs could curb pricing power, and drive down revenue growth.

Moody’s expects return on assets and return on equity to come under pressure in 2018/19.

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Zimbabwe continues battle to save currency, introduces gold coins as legal tender. Will that work?

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South African country, Zimbabwe has continued its battle at fighting inflation as its central bank will start issuing gold coins as legal tender in late July.

Soaring inflation has weakened the local currency and the central hopes the gold coin, named ‘Mosi-oa-Tunya’, after Victoria Falls, can be converted into cash in the bid to strengthen its legal tender.

Last month, Zimbabwe raised its key rate to 200 percent after it was raised from raised to 80% in April from 60%. The decision made the country’s rate the highest in the world as it battles with soaring inflation persist. The rate was last

The central bank governor, John Mangudya in a statement on Monday, said that the gold coins will be available for sale to the public in both local currency and US dollars and other foreign currencies at a price based on the prevailing international price of gold and the cost production”.

The coins are expected to act as a ‘store of value and to reduce the demand for US dollars’ – something that has been blamed for the weakening value of the local currency.

In another move 2 months ago, the Zimbabwean government has ordered commercial banks in the country to stop lending money to government at all levels, businesses and individuals with immediate effect.

Will the introduction of the coins be the final answer to Zimbabwe currency crises the possibility is low as its current inflation situation is a product of many factors which cannot be turned over night but hopefully the coins will be the flip that leads a new path.

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Somalia gives foreign banks licence to operate in decades

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The Somali government has announced the licensing of foreign banks for the first time in over two decades six weeks after President Hassan Sheikh Mohamoud was sworn into office following an elections that took years to conduct following a lingering political crisis.

The announcement which was made on Monday by the governor of the Central Bank of Somalia (CBS) Abdirahman Mohamed Abdullahi, said the war-ravaged country has granted banking licenses to two foreign institutions to operate in the country after President Mohamoud had promised to open the country to international investment during his campaigns for the elections.

The first foreign banking institutions to benefit from the decision are Egyptian bank, Banque Misr, and Turkish bank, Ziraat Katilim, who have been allowed to operate in Somalia.

“The review of the applications of these two banks has been the subject of a lengthy process of several months.

“These are two strong banks that will add value to the development of Somalia’s financial sector and contribute to the growth of our economy,” the CBS governor said

Ranked one of the poorest countries in the world by the World Bank, the average Somalian lives on less than $1.90 a day as the country struggles to recover from decades civil war and and opening its doors to foreign investments is seen as President Mohamoud fulfilment of his pledge to improve the economic situation and provide basic banking services to the population.

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