Banks struggling to lend as short-term deposits dominate

Zimbabwe’s broad money supply continues to be dominated by short-term deposits, a factor that constrains the local financial services sector’s capacity to lend to critical sectors of the economy on a long-term basis.

“Broad money” refers to the measure of money supply that includes physical money such as currency and coins, demand deposits at commercial banks and any other monies held in easily accessible accounts.

According to the Reserve Bank of Zimbabwe (RBZ)’s latest review for the week ended January 6, 2016 broad money supply was dominated by one month and three months tenor deposits.

“Average deposit rates for deposits of one month tenor declined by 0,01 percentage points to 5,33 percent, during the week ending January 6, 2017.

“Savings deposits and deposits of three months tenor attracted deposits rates of 3,01 percent and 5,72 percent, respectively in the same week,” noted the RBZ.

Long-term deposits are essential for any country’s banking sector insofar as banks can then convert those savings into larger amounts of credit, which is important for lubricating the economy in various forms, for instance, as trade credit or working capital, analysts say.

The central bank also noted that during the week under review, weighted lending rates for individual and corporate clients at commercial banks declined by 0,01 and 0,14 points to 10,58 percent and 6,73 percent respectively.

Meanwhile electronic transactions during the period under review where weaker from the previous week, a development the RBZ attributed to low usage of Point-Of-Sale (POS) machines, probably as overdrawn accounts affect the transacting public.

During the period under review, the total value of transactions processed through the National Payments System (NPS) registered a 5 percent decline. “The fall in the total value of NPS transactions was largely explained by the decrease in the value of POS transactions,” said the RBZ.

In value terms, NPS transactions were distributed as follows: RTGS (76,58 percent), POS (11,62 percent), Mobile (9,80 percent), ATM (1,90 percent), and Cheque (0,10 percent).

And the total volume of NPS transactions declined by 12 percent to 9 941 674, during the week under review.

“In terms of contributions to the total volume of NPS transactions, Mobile transactions were highest at 63,15 percent, followed by POS, 31,13 percent; ATM, 4,92 percent; and Cheque, 0,3 percent,” highlighted the RBZ. — BH24.