via Liquidity crunch: Zimbabwe banks limit withdrawals November 22, 2013 by Chris Muronzi Zimbabwe Independent
LIQUIDITY conditions have worsened in the last two weeks with more banks limiting cash withdrawals in recent days amid fears the financial services sector is headed for troubled times.
Information gathered by the Zimbabwe Independent shows some banks, particularly indigenous ones, have resorted to withdrawal limits for their clients due to liquidity constraints. Civil servants, some of whom are set to receive annual bonuses this month, may not get their money.
The banking sector, reeling from the liquidity crunch and systemic vulnerabilities, needs a massive cash injection, together with the rest of the economy to avoid a full-blown crisis.
Zimbabwe’s liquidity crunch has been worsened by its negative balance of payment position, with the country importing more than it is exporting. After a prolonged economic and political crisis, Zimbabwe’s economic recovery began with the end of hyperinflation in 2009, supported by the inclusive government, a favourable external environment, multicurrency regime and cash budgeting, but the situation is now deteriorating as shown by company closures.
One banker said yesterday: “The problem now is liquidity is being funneled out just as fast as it comes through the import bill. Unless we get some kind of cash injection via an FDI (foreign direct investment), loans or grants, the situation will get worse.”
Another banking executive said the situation was critical. “There is no stability in the economy and markets because most deposits are transitory deposits; they are funds held in bank accounts from which they can be withdrawn at any time without any advance notice,” the executive said.
The Bankers Association of Zimbabwe says 83% of total deposits are transitory.
Growth in exports has remained low, averaging less than 1% monthly against a background of rising imports and low production. An expansion in imports against static exports means the current account deficit continues to worsen while the economy haemorrhages.
While the central bank maintains broad money supply, which in September stood at US3,9 billion up from US$3,7 billion in August, improved marginally, the liquidity situation on the ground is suffocating.
“Annual broad money growth declined from 5,77% in August 2013 to 4,89% in September 2013,” said the RBZ bulletin. “On a month-on-month basis, money supply recorded an increase of 3,01% to US$3,910 billion in September 2013, from US$3,796 billion in August. The month-on-month increase in broad money was largely due to inflows of US$87,83 million at commercial banks.”
Annual growth in credit to the private sector declined by 1,88 percentage points, from 12,84% in August to 10,96% in September.
However, on a month-on-month basis, credit to the private sector grew by 0,64% in September 2013, from US$3,694 billion in August 2013 to US$3,717 billion. As a result, the loan-to-deposit ratio declined to 95,07% in September 2013, compared to 97,32% in August 2013.
Commercial bank deposits amounted to US$3,3 billion in September, the central bank said.
COMMENTS
The terrible situation in Zimbabwe today conforms in many ways to the worst of everything Ian Smith had feared of locals’ majority rule, and is the very spectre that inspired him to fight so hard to prevent it. In 1976 was precisely what radicalised a generation of the black Zimbabwean leadership and created Smith’s nemesis, Robert Mugabe, elevating him to the rank of a liberation hero, who set about cultivating an almost messianic status. And in many respects Mugabe’s methods now mirror those of his old oppressor. The big mistake the Rhodesians made was they saw the country as being a sort of giant gentleman’s club in Southern Africa and ran a highly restrictive immigration policy that meant you had to pay something like £4,000 to get in. Had they adopted an open door immigration policy then they could have attracted more immigrants from Britain post war and this might have enabled them to carry on the war for another decade when the collapse of the USSR would have denied the African Nationalists funding and weapons and might have enabled the Rhodesians to negotiate a better settlement, but that’s a best case scenario and I really doubt they could have achieved a total victory.