eBusiness Weekly
Kudzanai Sharara
The structure of banking deposits in the country’s financial institutions are out of sync with the country’s economic needs and have crippled banks in making the necessary economic interventions, the Bankers Association of Zimbabwe has said.
In an emailed response to Business Weekly on why local banking institutions, sitting on more than $9 billion worth of deposits, are failing to offer appropriate financial solutions that meet local needs, BAZ president Webster Rusere, said the deposits are not appropriately tenured to meet the country’s economic requirements.
This is despite the country having 19 banking institutions operating within its borders as at 31 December 2017.
This is in addition to 178 credit-only micro-finance institutions and four deposit taking micro-finance institutions.
Banks have, however, been cautious on landing with the loan to deposit ratio coming out at 44,81 percent as at December 2018.
This is despite banks being highly liquid at 62,62 percent above the regulatory requirement of 30 percent.
“It is common knowledge that the country requires long-term patient capital to rehabilitate infrastructure in power, water, agriculture, transport, tourism and other key sectors of the economy.
“The current structure of banking deposits do not allow such intervention hence the need for appropriately tenured credit lines,” Rusere said.
Bank deposits remain mainly of short- term nature, with demand deposits accounting for the bulk, more than both term and savings deposits.
Banks have also reduced their appetite for foreign lines of credit whose costs, given the risk premium attached to the country, are punitive to the local industry. A look at financial results for the year ended December 31, 2017, reveals the scale back on foreign lines of credit. Facilities that are still finding their way into the country are those specifically targeted for exporters.
Banks are considering the ability to pay back the dollar denominated foreign loans amid depleted nostro account balances.
Lending to local producers for the domestic market is considered as risk amid the foreign currency constraints prevailing in the country.
The inability by local banks to offer solutions tailor made for long term has resulted in calls for foreign players to come and invest in the market.
Addressing a Chinese business delegation last month, President Mngangagwa invited the investors to come and establish financial institutions that “offer appropriate financial solutions and packages for the unique realities of Zimbabwe.
Analysts have, however, blamed banks for failing to come up with investment instruments that can attract long-term and savings deposits, something the RBZ seem to be doing with its savings bond which has since mopped up more than $1 billion in less than a year after the instrument was introduced.
The savings bond pays an interest of 7 percent per annum, which compares favourably with most short-term deposits paying interest rates of approximately 3 percent for 90 days.
Walter Mandeya, an analyst with Trigrams Investments said banks are reluctant to lend as they are already making huge profits from the current status quo.
“Looking at the structure of banking financial results, you immediately see why deposits have remained transitory in nature. Most banks are making more money from fees and commissions than from interest income.
“They are happy if not complicit in maintenance of the status quo. Most banks have been reporting very low interest expenses, meaning they are not offering their depositors any incentive to place money with them for longer periods,” he said.
Another analyst said as much as the structure of deposits was short term, banks are not innovative enough, at least at a large scale.
“Yes, the structure of deposits is a problem but banks as well are not innovative. They are still offering the same basic traditional products. In difficult times calls for innovation and transformation, which to some extent is being hampered by heavy regulatory pressures,” said Tinashe Kaduwo.
Mandeya added saying banks have no real incentive to intermediate when they are making more from transaction charges.
“My question to the bankers is what have they been doing to try and change the structure of the deposits? How have they tried to encourage longer-term deposits and investments?”
We would argue that the monetary problems that we have can be traced back to the bankers in respect to poor credit management resulting in non-performing loans and varying levels of indiscipline in the sector and also to be RBZ for not effectively policing the banks on the one hand and trying to compete with the banks on the other hand.
Others, however, still agreed that the bulk of most deposits in the financial services sector are short-term or transient; yet, the productive sector needs long-term financing, so there is obviously a disconnect between the type of available finance to the needs of industry.
