Loans distribution 'unhealthy' — Biti

HARARE - Finance minister Tendai Biti has lambasted the distribution of loans by the financial sector, which is heavily inclined towards the non-productive and consumptive sectors of the economy.

This comes as 16 percent of loans disbursed by banks in December last year were advanced to individuals and households.

Biti said the personal loans are non-productive as they go towards purchase of household goods at the expense of productive sectors of the economy.

“This is not good enough. These resources should be channelled to productive sectors,” Biti said in presenting the February state of the economy report.

He noted that although productive sectors such as agriculture and manufacturing constituted the bulk of loans distribution at 19 percent and 18 percent respectively, government was concerned that banks were giving priority to households.

Loans and advances to the private sector increased by 29,1 percent from $2,7 billion in 2011 to $3,5 billion as at 31 December last year.

According to Biti, this translated to a loan deposit ratio of 89,6 percent.

In December, banks’ demand deposits stood at 55 percent, followed by savings and long term deposits at 31 percent and 14 percent respectively.

Zimbabwe’s financial sector remains vulnerable with some banks struggling to raise capital in line with the Reserve Bank of Zimbabwe requirements, while rising non-performing loans, limited lines of credit and tight liquidity exacerbate the situation.

Liquidity remains a challenge due to the short-term nature of deposits, the absence of an active inter-bank market and lender of last resort.

Depressed savings due to low salaries, poor interest income and high operational costs further compound the financial sector’s crisis.

“There has been very little flow of fresh capital into the country as creditors sit on the fence due to both economic and political uncertainty,” an economic analyst who requested anonymity said.

This also comes as Biti has threatened to introduce a new law compelling banks to comply with an agreed new interest rate regime lowering the cost of borrowing amid concerns that some institutions were flouting the Memorandum of Understanding (Mou) with the central bank signed last month.

Following public outcry over high service charges, the Reserve Bank of Zimbabwe (RBZ) and banking institutions signed a Mou, which provides guidelines for the determination of interest rate margins and bank charges.

The Mou, according to the RBZ, took effect on February 1.

Banks are now required to pay an interest of four percent for time deposits of $1 000 and above held over a period of at least 30 days.

The Mou also requires that lending rates at banks be subject to a maximum rate of more than 12,5 percent above each respective bank’s weighted average cost of funds.

Under this arrangement, banks will charge up to 0,5 percent of cash withdrawal amount subject to minimum charge of $2,50 while ledger fees, maintenance and service fees will cost up to $4 per account.

The central bank and the bankers also agreed to push for the mandatory use of debit cards.

Automated teller machines, according to the MoU and will now attract a withdrawal fee of $2. - Kudzai Chawafambira

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