THE World Bank has said confidence in the country’s banking system has remained low due to failure by some locally-owned banking institutions and delays by government to convert the now worthless Zimbabwe dollar accounts into foreign currency accounts despite growing deposits.
Report by Bernard Mpofu Chief Business Reporter
According to a latest research note on financing investment for Zimbabwe’s growth recovery, the multilateral lender said the government should come up with measures that encourage a savings culture.
“The level of confidence in the banking system remains low: many banks have gone out of business since dollarisation, including Genesis and Interfin, while deposit insurance is capped at $150 per account. Furthermore, the dollarisation implemented in 2009 was done with no conversion of the significant stock of savings held by households in Zimbabwean dollars into United States dollar equivalents,” the research notes in part.
“This was not only the case for direct savings vehicles, such as saving accounts held at banks, it was also the case for indirect vehicles such as life assurance policies. As a result, consumers and businesses are generally unwilling to invest for longer terms, even though terms of deposits offer interest rates between five and 15%.”
Finance minister Tendai Biti has on several occasions pledged to convert the Zimbabwe dollar accounts into foreign exchange, but nothing has been fruitful.
The banking public lost confidence in the financial services sector at the height of the country’s unprecedented economic meltdown which ended in 2009. Since then, bank deposits have gradually risen from $300 million to over $4 billion as at June this year.
At its just-ended conference, Zanu PF resolved to reintroduce the redundant Zimbabwe dollar to run alongside the multi-currency regime in order to resolve the liquidity challenges besetting the country.
The low levels of savings, which Treasury says should, account for 25% of the economy according to the research, has resulted in a limited scope for channelling savings back into the formal financial system. Independent statistics show that nearly $3 billion could be circulating outside the formal banking system.
“ . . . since deposits can be withdrawn at short notice, banks’ liabilities can be highly volatile. High volatility and the absence of an interbank market and money market instruments inhibit the ability of the banking system to match banks with excess funds with those in need of them, making banks less willing to extend long term loans and forcing them to hold much higher cash balances than otherwise, in order to meet unexpected liquidity needs,” reads part of the report.