Zimbabwe’s bank deposits, currently standing at US$1,9 billion, have not been backed by a savings culture as depositors withdraw funds from bank accounts immediately after they are credited because of high bank charges and unattractive interest rates.
Government is hoping that greater savings mobilisation would restore the vibrancy of the money and capital markets following years of hyperinflation that wiped out the value of financial instruments held by savers.
This is the second time within a year that the Finance minister has cautioned banks over this issue. In April he said government had spent the past year using moral suasion to entice banks to increase interests on deposits, currently as low as 2% per annum.
Bankers say limited lines of credit and subdued growth of the sector have forced them to offer low rates to depositors.
“High lending rates as high as 30% attributed by banks to the liquidity constraints in the economy, short term nature of deposits and high risks, against low deposit rates of as low as 2% attributed also to the short term nature of deposits (more than 90%) penalise borrowers and discourage savings deposits, respectively,” said Biti during the Mid-Year Fiscal Policy Review on Wednesday.
“Government will, through the Reserve Bank, continue dialoguing with the Bankers’ Association of Zimbabwe with a view of narrowing interest rates spreads. If the situation does not change, government will have to take corrective measures through the necessary statutory instruments.”
Biti reiterated that the multiple currency regime would remain until 2012. He said currency reforms would be guided by developments in the economy.
Zimbabwe adopted the use of multiple currencies last year following a 10-year economic recession that resulted in the collapse of the Zimbabwe dollar.
“Under the current-multi currency regime, the inadequacy of smaller denominations has posed a number of challenges in transactions. Treasury will therefore be facilitating in the last half of 2010 the importation of smaller denominations and coins,” he said.
The move to import smaller denominations and coins follows an earlier announcement by the Bankers Association of Zimbabwe that financial institutions were struggling to import coins due to high costs. In the absence of coins, most retailers have adopted various means that include the use of “tokens” to avoid shortchanging customers.
The Finance minister promised to restore the lender of last resort status to the RBZ after the International Monetary Fund recently cautioned that the central bank’s weak liquidity position left financial institutions exposed.
“Resuscitating the lender of last resort function of the Reserve Bank will facilitate the revival of the interbank market, re-establishing the overnight lending rate as the benchmark for market rates. In this regard, treasury will ring fence resources to on-lend to the Reserve Bank to enable the central bank to resume its lender of last resort function,” the minister said.
Treasury this year allocated a paltry US$10 million to the debt-ridden apex bank, an amount monetary authorities say is inadequate.