The increase in banking deposits has resulted in a marginal decline in the average lending rates by both commercial and merchant banks.
According to the African Development Bank (AfDB) monthly Economic Review for May, commercial bank weighted average base lending rates declined from 14% per annum in February 2012 to 10,1% per annum in March 2012. Over the same period, merchant bank weighted average base lending rates also declined from 20,1% in February 2012 to 18,8% per annum in March 2012.
“The softening in lending rates could be attributed to the increase in the amount of total banking sector deposits. However, the gap between the lending and deposit rates is still wide,” reads part of the report.
The three-month deposit rates increased to 10% per annum in March 2012 from 9,1%, which had prevailed between December 2011 and February 2012.
Savings deposit rates increased significantly from 2,6% per annum that had prevailed since July 2011 to 6% per annum in March 2012.
“The real savings rate for March 2012 is positive, which is favourable for savings mobilisation. There is need for a further increase in the deposit rates to entice savers to bank money in the formal banking institutions. This would go a long way in assisting the economic recovery process,” AfDB said.
Latest statistics from the Reserve Bank of Zimbabwe (RBZ) indicated that banking deposits in the entire banking sector rose to $4 billion this month from $3,3 billion in January. The increase in banking sector deposits was attributed to an inflow of funds from nostro account balances that had been held in foreign banks, tobacco sales and improving depositor confidence in the banking sector.
RBZ governor Gideon Gono last week said the forthcoming monetary policy statement expected in July would tackle bank charges and interest rates that have been criticised for discouraging deposits into the formal banking sector.
During the period under review, the loan-to-deposit ratio increased from 82,2% in February 2012 to 83,8% in March. AfDB said a reduction in the loan-to-deposit ratio was still required, given the prevailing non- performing loans.
It said most companies and individuals were already over-borrowed, a situation that could easily result in loan repayment default should further borrowing take place. In this case, there was scope for caution on the part of both borrowers and lenders.
AfDB said there was relative immobility of funds within the banking sector attributed to factors that include an inactive money market; absence of Government paper in the market due to the cash budgetary framework; lack of acceptable collateral security for borrowing and inactive inter-bank market. Banks are reluctant to trade among themselves. Strong banks with huge surpluses are unwilling to lend to weak banks, with shortages.