adminlocal banks.
Governor Dr Gono said the central bank was concerned that the inactive funds could have been used to ease liquidity conditions on the market.
He said the surpluses were noted as of july 2011.
Surpluses arise when the bulk of the deposits are not transitory in nature and when demand for these funds is low.
RTGS surpluses are skewed towards bigger banks, which have a stable deposit base and whose lending is limited.
Dr Gono said large balances remaining on financial institutions’ RTGS positions also reflect the non-existence of a functional money market.
“In the absence of short-term tradeable securities, financial institutions are forced to keep most of the liquid assets in the form of cash,” he said.
He says the limited lender of the last resort fund of US$7 million, with its complicated collateral, has seen banks being more prudent by keeping unnecessarily large balances of liquid assets in cash, especially given that most of their liabilities were demand deposits.
But banks normally keep liquid assets in a combination of cash as well as short-term liquid and tradeable instruments.
If the money market was functional and tradeable securities were available, the balances remaining on RTGS would be much lower.
Besides RTGS surpluses analysts say banks could be sitting on more funds as total banking assets have grown from US$2,2 billion in December 2009 to US$3,7 billion in December 2010 and US$3,9 billion in March 2011.
Growth in bank assets that include the deposit base should translate to increased lending.
However, during the same period – between December 2009 and June 2011 – total banking sector loans and advances increased from US$686 million to US$2,3 billion.
Analysts say the increase in bank assets should also reflect an increase in bank advances. But the latest figures indicate that the banks are still very reluctant to lend money.
Despite not lending money, the banks are only offering short-term loans, which are very expensive.
“That is the question we are asking: if total bank assets are increasing it means the depositors base is also increasing and ultimately increase advances but the ratios are not tally- ing.
“This shows that banks are not lending but using depositors’ funds probably to buy buildings,” he said.
“The idea of banking is to circulate the money – that is collecting deposits and lending it out. That is not happening in our economy,” said one analyst.
According to the central bank, total banking sector deposits increased 63 percent from US$2,57 billion as at December 2010 to US$3,1 billion as at June 2011.
The level of credit support to the private sector in relation to deposits is largely comparable to regional and international averages, which average between 70 and 90 percent.
The loan-to-deposit ratio has gradually increased from 33 percent in April 2009 to 74 percent in June 2011.
In spite of the liquidity constraints, the market has seen an improvement in the tenure of loans offered, particularly mortgage financing with some building societies now offering facilities of up to 10 years.
Although financial institutions maintain that it is difficult to shore up lending activity, particularly at a time when an estimated 90 percent of deposits are short-term or transitory, the discrepancy in the loan-to-deposit ratio between foreign and local banks is worrying.
Online Reporter