Skewed lending blasted

growth in the country, Reserve Bank of Zimbabwe Governor Dr Gideon Gono has said.
According to the monetary policy statement issued by Dr Gono, the country’s financial sector disbursed about US$2,3 billion into the private sector and 40 percent of the funds went to the non-productive sector.

The distribution and services sectors and individuals received the largest chunk of the funds.
Agriculture and mining sector, the main anchors of the economy, got 21,2 percent and 6,8 percent respectively.
Manufacturing got 19,8 percent, communication 4,6 percent, construction 2,1 percent and other sectors got 6,6 percent.

“The allocation of much of the 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,” said Dr Gono.

Dr Gideon Gono said that due to the high cost and short-term nature of credit, funds that have been sourced were largely for financing non-productive sectors expenditures.
The finance has largely used for recurrent expenditures and consumer durables 48 percent, raw materials, 42,6 percent, capital investments 7,2 percent and pre-shipments 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.

He added that the financial sector has been impeded by an inactive money market due to low liquidity levels coupled with the absence of securities such as Treasury bills.
TBs are highly regarded as risk-free instruments for collateral purposes. The money market is currently dominated by short-term bankers acceptances, which are priced at exorbitant interest rates of between 20 and 36 percent.

The structure of deposits remains short-term in nature, accounting for over 90 percent of total deposits.
The deposits remain concentrated in the four major banks, almost 62 percent of the deposits.

To increase funding to the productive sectors of the economy banks have been encouraged to be aggressive and to mobilise an additional US$2,5 billion, estimated to be circulating in the informal sector, for on lending to industry.

Analysts said it was high time the financial sector mobilised local resources to fund industry on the back of the failure by the country to mobilise funding from the international community.
This has largely been a result of poor creditworthiness. Government is, however, still concerned at the high lending rates, which are between 12 and 30 percent and the increasing non-performing loans.

It is understood 34 percent of loans have not been paid as of April this year. In spite of the liquidity constraints, the market has also seen an improvement in the tenure of loans offered, particularly mortgage financing, with some building societies now offering facilities of up to 10 years.