Bank deposits increase

from the Reserve Bank of Zimbabwe have revealed.
There was also corresponding growth in lending levels by local banks. In his monetary policy statement released last Friday, RBZ Governor Dr Gideon Gono said there had been improvement in broad money supply during the half-year period.

“Broad money, as defined by deposits held by banks, continued on an upward trend reflecting both improved deposit base and increased lending by banks.
“Total deposits held by banks grew by US$572,1 million to US$2,8 billion in June 2011 from US$2,3 billion in December 2010,” he said.

Credit to the private sector grew by US$670,2 million to US$2,3 billion in June from US$1,6 billion in December 2010, translating to a loan to deposit ratio of 81 percent.
In respect of the different sectors, the data shows that non-productive sectors of the economy, distribution, services and individuals received the lion’s share of bank credit, of around 40 percent.

The agricultural sector received 21,2 percent, manufacturing 19,8 percent, mining 6,8 percent, transport and communication 4,6 percent, construction 2,1 percent, and other sectors 6,6 percent.
“Due to the high cost and short-term nature of credit, funds have largely been sourced for financing non-productive expenditures.

“Utilisation has been largely used to finance recurrent expenditures and consumer durables 48 percent, raw material 42,6 percent, capital investments 7,2 percent and pre-shipment finance 2,2 percent.

“Reflecting the dominance of non-productive borrowing in the economy, consumptive imports were estimated at US$2,7 billion in 2010, which translates to 59 percent of the non-food import bill,” noted the central bank governor.

Allocation of a considerable portion of bank credit towards consumptive and recurrent expenditures, with less than 10 percent of credit going towards capital investments, continues to inhibit the economy from realising its full growth potential.

Economist Mr Brains Muchemwa said the growth in deposits should translate into a reduction of interest rates.
However, another economist, Mr Takunda Mugaga, said interest rates would remain high until the central bank is adequately capitalised to play its core function.

“The Government is actively seeking to push interest rates downwards but this is almost impossible with an insolvent central bank, since banks are forced to cushion themselves from the perceived sovereign risk by hiking rates,” he said.

The determinacy of the country’s monetary policy is severely limited by a lack of market liquidity, low savings, volatile deposits, limited availability of credit, the reduced role of the central bank as a lender of last resort and the introduction of the multi-currency system.