via Zim banks undercapitalised December 19, 2013 by Victoria Mtomba NewsDay
ZIMBABWE’S financial services sector remains under-capitalised and hamstrung by tight liquidity, former Finance minister Tendai Biti has said.
The challenges make banks vulnerable to economic shocks, Biti told journalists during his state-of-the-economy address on Tuesday in the capital.
“What is happening at Obert Mpofu’s ZABG (now Allied Bank) is not a liquidity issue, but capitalisation issue.The banks are undercapitalised.Bigger banks have a genuine liquidity crisis, what economist call money supply growth,” he said.
The biting liquidity crisis is manifesting itself in long queues especially at small banks.
On Monday, depositors of Allied Bank (formerly ZABG) turned riotous, smashing door glasses after failing to access cash at one of the bank’s branches.
Last month a branch manager of Metbank in Mutare had to seek refuge at a police station as depositors threatened to beat him up after failing to access their money.
The cash crunch has been exacerbated by the closure of Trust Bank which has knocked down the confidence in smaller banks.
Biti said the country needs to attract foreign direct investment and to engage the international community to have more funding.
At a function held recently, Bankers’ Association of Zimbabwe president George Guvamatanga said money is not sympathetic so the right policies should be put in place by government to attract funding.
Biti said growth rates are projected to go down further to below 2% as all economic fundamentals are trending downwards except inflation. He said the agricultural sector will shrink by 23%, mining 32%.
In June this year Biti revised the growth rates for 2013 to 3,4% from 5%.
“All indicators are pointing to a serious shrinkage whether its agriculture, mining and it’s clear that growth should be below 2%, around 1,5% to 1,8%,” Biti said.
“The only one that you would call positive is the rate of inflation that is actually reducing. It’s no longer low inflation which some of us fought so much to lower it’s now stagflation.”
Stagflation is a result of low domestic demand and no economic activity. It becomes a by-product of low economic activity.
He said the country requires a $4 billion stimulus package for the industry and has to engage the international community.
Biti said government has not been able to give various line ministries money as revenues to fiscus have been dwindling.
On food security, Biti said the country might need more aid next year due to the erratic rainfall that has been experienced.
“We have had a very erratic rainy season. In the case of tobacco, in many parts of the country the crop has been written off at seedling level and not at planting level, and that is a disaster.
Experts will tell you that the farming season in Zimbabwe ends on December 15 and there is hardly any farming in the country. What it means is we have a hunger crisis with three quarters of the country having to be fed through humanitarian assistance in 2014,” Biti said.