via Zim banking ‘crippled by liquidity crunch’ | Fin24 May 21 2014 by Malcom Sharara
Zimbabwe’s banking coffers leave little room for sustainable recovery and growth, statistics from the country’s central bank show.
According to the Reserve Bank of Zimbabwe’s (RBZ’s) March monthly review, short-term deposits accounted for over 83% of money supply in the country’s banking sector.
This has meant productive sectors are starved of much-needed loans.
In the period under review credit to the private sector declined by 0.5%, from US$3 627.0m in February 2014 to $3 610.4m in March 2014.
The RBZ said the slowdown reflects constrained lending by banks on the back of liquidity challenges, a low deposit base and risk aversion due to increasing non-performing loans in the banking sector.
Non-performing loans have since reached 17% of total loans advanced.
Of the $3 610.4m advanced to the private sector, key sectors such as mining received only 6.3% while construction received 1.6%.
“Mining and construction industries which require long term loans, received smaller proportion of the loans and advances, as the banking sector continues to be crippled by liquidity crunch,” said the RBZ.
The mining sector is touted by the Zimbabwean government as key to the country’s economic recovery and growth prospects, and yet the sector is not getting much funding from both local and foreign financial institutions.
Of the credit to the private sector, only 7.8% was utilised for capital expenditures which again points to limited growth prospects.
Zimbabwe will thus have to rely on external funding to kickstart the economy but this has been hampered by the external debt overhang amounting $6.4bn.
The International Monetary Fund and the World Bank have since said Zimbabwe will have to clear its debts to obtain any assistance.
The World Bank also said Zimbabwe does not qualify for debt relief under the Heavily Indebted Poor Countries strategy, because it has capacity for a sustainable economic recovery.
Several countries have also said they are not in a position to help the country, with Brazil this week saying “the southern African nation is too rich to beg for financial assistance.”