Banking sector assets grow past E31 billion

The ratio of Non-Performing Loans (NPLs) in Eswatini’s banking sector rose marginally to 7.2 per cent during the 2024/25 financial year, underscoring the delicate balance between expanding credit and managing risk.

According to the latest banking sector results, the rise was modest, indicating that overall credit risk management remains stable despite on-going economic pressures.

Total loans issued by the banking sector increased by 14.1 per cent to reach E18.48 billion. This expansion in credit supported households and businesses but also added to the sector’s exposure, reflected in the slight increase in NPLs.

Deposits grew by 12.9 per cent to E21.89 billion, showing continued trust in the banking system and steady inflows of funds.

The rise in both loans and deposits demonstrates a healthy cycle of financial intermediation, where the public places savings with banks that are then channelled into productive lending.

Overall balance sheet growth remained strong, with sector assets rising 11.4 per cent to E31.43 billion. This growth was supported by increased lending activity and a stable deposit base.

The expansion highlights the role of the banking sector in financing the economy and maintaining financial intermediation during a year of global uncertainty.

The loan-to-deposit ratio climbed to 84.4 per cent, indicating that banks are lending more relative to the deposits they mobilise.
While still within sustainable limits, the higher ratio points to tightening liquidity.

Analysts note that this could place more pressure on banks to attract deposits in the coming year, particularly as credit demand continues to grow.

Despite tighter conditions, the liquidity ratio stood at 32.9 per cent. Though lower than in the previous year, this remains above the regulatory threshold, ensuring that banks have sufficient short-term assets to meet withdrawal demands.

The ratio provides comfort that the sector can handle liquidity shocks even as it extends more credit.

The sector reported a 2.5 per cent decline in after-tax profits, closing the year at E142.5 million. Narrower interest margins and higher provisions for potential loan losses were the main reasons for the dip.

While the reduction in profitability reflects the challenges of balancing growth and risk, the modest size of the decline suggests that banks remain resilient and financially sound.

The rise in the NPL ratio to 7.2 per cent was moderate compared to the expansion of lending activity, reflecting that most borrowers continue to service their loans.

Banking executives say the sector’s focus on prudent lending practices and stronger monitoring frameworks has contained risks, even as the loan book expanded significantly.

Industry observers caution that maintaining this balance will be key in the coming year. Higher interest rates, inflationary pressures, and global market volatility could affect borrowers’ repayment capacity, potentially placing further strain on loan performance.

Despite these pressures, the overall numbers point to a well-capitalised and resilient sector. Asset growth above 11 per cent, deposit growth near 13 per cent, and liquidity above regulatory minimums all signal that Eswatini’s banks are well-positioned to withstand economic challenges.

The performance underscores the dual role of the banking sector: to extend credit that supports growth, while maintaining strong risk management frameworks to protect financial stability.