DESPITE long-term deposits more than doubling last year, banks are constrained to meet growing demand from various sectors of the economy, a leading research firm has said.
BY OUR STAFF
Although bank deposits have been increasing since dollarisation in 2009, most of it has been transitory in nature due to low disposable incomes.
In a banking sector analysis report for 2012, MMC Capital said of the US$4,411 billion deposits, 79,35% were transitory in nature, that is, demand, savings and short term deposits.
It said deposits held by banks largely emanated from utilities and local authorities — 19, 91%, households (individuals) 18,40%, financial organisations 17,41% and distribution sector at 12,96%.
“Despite a remarked improvement in the long term component of deposits from 9,6% as at December 31 2011 to 20.65% as at December 31 2012, the capacity of banks to extend the much needed long term facilities to various sectors of the economy remains constrained as demand for credit outpaces supply,” MMC said.
According to the central bank, growth in banking sector deposits was largely driven by annual increases in time deposits as well as off-shore lines of credit.
MMC said the significant increase in time deposits partially reflects the shifting of economic agents from non-interest earning balances to interest earning deposits.
“This is because banks had been quoting demand and savings rates that were below 3,8% whilst time deposits quotes were as high as 24%,” it said.
The short-term nature of deposits as well as high liquidity risks, MMC said, would correspondingly lead to short-term lending.
MMC said the growth of deposits would be dependent on factors such as the growth of the economy, disposable economy and lines of credit versus the country’s debt situation.
It said economic growth remains constrained by challenges regarding the large external debt burden and high unemployment (estimated at over 80%), while disposable income is depressed in line with per capita income thereby militating negatively on deposit growth.
MMC said Zimbabwe is heavily burdened by its massive external debt of over US$10 billion and this imposes a huge country risk premium on Zimbabwe, further stifling capacity for credit growth.
“Country risk will remain the greatest hindrance to accessing offshore lines of credit and with the export sector struggling to recover, the gap between demand and supply of loanable funds will likely persist, exerting upward pressure on lending margins,” MMC said.