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NewsDay

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‘Revive agri-focused financial institutions’

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The African Development Bank (AfDB) says there is an urgent need for the government to revive specialised financial institutions that fund agriculture in order to reduce “pressure” on banks. According to its monthly economic review for May, the regional institution said banking loans were concentrated in a select number of economic sectors disadvantaging the agriculture […]

The African Development Bank (AfDB) says there is an urgent need for the government to revive specialised financial institutions that fund agriculture in order to reduce “pressure” on banks.

According to its monthly economic review for May, the regional institution said banking loans were concentrated in a select number of economic sectors disadvantaging the agriculture sector.

As of April 2012, the distribution sector accounted for (23,2%), agriculture (22,2%), manufacturing (21,7%) while other sectors had 18,6% of all loans forwarded by the banking sector.

“There is a need to diversify bank loans and advances as concentration may be risky in case of shocks such as droughts or poor harvests in agriculture,” AfDB said.

“There is also need to revitalise other specialised institutions to fund sectors such as agriculture so that banks are not pressurised to fund agriculture.”

At the moment funding into agriculture is mainly through Agribank.

The biting liquidity constraints, underperformance of the mining sector in the first quarter and electricity shortages, continue to threaten the achievement of the economic growth target for 2012.

According to Finance minister Tendai Biti’s first quarter economic review, the country registered a decline in the hectarage planted in the 2011-2012 season owing partly to the late onset of rains.

Official figures show that of the 1 689 hectares planted in maize crop, under 498 144 hectares is estimated to have been written off with the resultant decline in output expected to have an overall impact on the gross domestic product.

In April bank credit to the private sector was distributed as loans and advances (84,4%); mortgages (7,4%); bankers acceptances (3%), bills discounted (2,6%) and other investments (2,5%).

Long-term deposits declined by 10,68% from $0,53 billion in March 2012 to $0,47 billion in April 2012.

“This development is unfavourable in an environment where borrowers require long-term funding,” AfDB said.

“Most of the borrowers are in the agricultural sector where farmers require long-term finance because the agricultural season is long.

“There is still a need to find ways of mobilising long-term finance.”

In April 2012, the composition of total banking sector deposits were 55,67% for demand deposits, 30,63% for saving and short-term deposits and 13,7% in long-term deposits.

AfDB said given the prevailing non-performing loans, there was need for banks to be cautious in advancing loans to clients already facing challenges in servicing some of the loans.