Liquidity challenge…weak depositor confidence cited


Weak depositor confidence in the formal banking sector and low average incomes have been cited as the major causes of the persistent liquidity challenges the country is facing, an African Development Bank (AFDB) report has shown.

In its latest monthly economic review, the AFDB said achievement of the 2012 projections set out in the National Budget were dependent on a stable economic and political environment and steady supply of electricity and water.

The report said the projections would be attainable if the government stuck to the cash budgeting system and increases output.

The economy is expected to grow by 9,4% and the inflation target is 5% while nominal gross domestic product will be $11,9 billion this year.

“Limited external lines of credit due to perceived country risk and the huge debt arrears have compounded the liquidity shortages.

The ongoing implementation of the indigenisation and economic empowerment laws and the expected national elections in 2012 continue to weaken external investor confidence,” said AfDB.

Treasury availed $100 million to banks in the 2012 National Budget to enable the Reserve Bank of Zimbabwe to resume its lender-of-last-resort function and kick-start inter-bank lending.

“There is need for measures to restore bank depositor confidence in the formal banking sector to harness cash that is circulating outside the formal banking sector into the formal banking sector,” AFDB said.

AFDB said total banking sector deposits increased to 49,3% in October 2011 from 32,3% in September.

Total banking deposits were $3,21 billion in October from $3,03 billion in September while on a month on month basis total banking deposits increased to 6% in October from 2,6% in September.

The report said commercial banks weighted average base lending rates increased to 13,1% per annum from 12,6% in September.

“The merchant bank weighted average base lending rates remained unchanged but are still considerably high. The three month deposit rate remained unchanged at 8,6% per annum while the savings rate increased from 1% per annum in September to 2,6% per annum in October,” the report said.