Following the inception of the inclusive government in 2009, which ushered in economic reforms and a sustainable multiple currency regime, the banking sector witnessed a crisis of depositor confidence and capitalisation, as the Zimbabwe dollar was rendered worthless.
However, despite a modicum of economic stability being restored, the banking sector has been affected by a liquidity crunch that has led to short-term lending with concomitant high interest rates.
“The banking system remains vulnerable with weak capitalisation, raising non-performingloans and tight liquidity situation,” Biti said in a statement on the state of the economy last week.
“Furthermore, non-compliance to the minimum capital adequacy threshold requirement by some small banks is worsening vulnerabilities in the sector.”
He said government would strengthen supervisory efforts and enforcement of compliance with prudential requirements.
Biti said that transferring non-core assets and liabilities into a Special Purpose Vehicle would restructure the Reserve Bank of Zimbabwe’s balance sheet.
The minister noted that on one hand, interest on savings deposits remained “pathetically low” at around 1% although savings for deposits of one month and three months have improved to around 9% and 12% respectively.
On the other hand, lending rates remain very high ranging from 15% to 30%, with over 90% of the total lending being short-term, a scenario that he described as unsustainable.
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Economist John Robertson described the adverse situation as a reflection of scarcity in the market, low levels of economic activity and investor apathy.“Most of the money in banks is on call basis rather than fixed deposit.
“Banks cannot lend money that urgently needs to be withdrawn,” he said adding that government needed to urgently reform its indigenisation policies in order to lure the much-needed capital.
“Banks are also being targeted by the indigenisation act.
“The lack of investor interest will naturally translate into lack of money in the banks eventually leading to banks charging high interest rates on loans.”
However, total deposits during the first quarter grew with January recording US$2,36 billion while February recorded US$2,4 billion.
“In line with the increase in the deposit base, lending also increased from US$1,81 billion in January to US$1,88 billion in February, translating into a loan deposit ratio of 76%,” Biti said.
