By now you are likely aware that Steward bank reported outstanding results for the year ending 28 February 2018. On various metrics, Zimbabwe’s youngest bank registered enviable figures. For instance, the bank witnessed a 133% increase in net operating income, a 289% increase in profit before tax, an 87% increase in net interest income etc. But another aspect worthy of attention is the decline of its liquidity ratio from 81% to 70%.
However, its liquidity ratio standing at 70% is still high and also it is way above the minimum prescribed ratio of 30%. It, therefore, means that the bank is still well guarded against liquidity risk. Liquidity risk is the risk that a company (or bank in this case) may be unable to meet short-term financial demands. The role of banks is to transform short-term deposits into long-term loans, although this makes banks inherently vulnerable to liquidity risks.
The bank says that its liquidity will continue to look good due to efficient “internal control processes and contingency plans for managing liquidity risk.” Steward bank’s efficient management of liquidity is essential as it upholds confidence in the bank and ensures that the business is sustainable.
While Steward bank’s high liquidity ratio is still laudable, it may dampen profits in the long terms for the bank given that holding cash is unproductive, although keeping it is a necessary part of banking.
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