BancABC group economist James Wadi says the high interest rate regime in the financial sector stemmed from an attempt by small banks to compensate for small deposit volumes.
The country’s big four banks CBZ, Barclays, Standard and Chartered and Stanbic control roughly 60 percent of the banking sector’s US$1.8 billion deposits.
The situation leaves the other 23 small banks scrambling for about US$800 million deposits. Bank deposits totaled US$1.8 billion in May this year.
Government has already expressed concerns over the interest rates charged by banks and will engage the banking sector on the issue and if that fails it may consider statutory instruments to bring interest rates down.
It is feared high interest rates are a result of a liquidity crisis limiting the pool for deposit mobilisation, may scupper economic recovery as firms are failing to borrow to finance productive activities.
“The structure of our financial sector is amazing. We are a US$5 billion economy, which is now sitting on US$1.8 billion bank deposits.
“We are closer to Zambia, a US$12 billion economy with total deposits of US$2.5 billion.
“We are even closer to Botswana a US$12 billion economy sitting on US$5 billion bank deposits, but they have benefited a lot from the exports of diamonds.
“(Locally), the four leading banks control almost 60 percent of bank deposits and that means they are sitting on about US$1 billion of the deposits.
“The 23 small banks are sitting with 40 percent of the market share and that would complicate the financial sector development,” said Wadi.
However, said the banking sector liquidity was a function of the country’s export performance, which is presently constrained by lack of long-term credit, low capacity utilisation, high cost of funding and the power crisis among others.
The remarks were related to concerns that were expressed by Finance Minister Tendai Biti in his mid term fiscal policy review on high interest rates charged by banks, which inhibit both corporate and individual borrowing.
“High lending rates of as high as 30 percent attributed by banks to the liquidity constraints in the economy, short term nature of deposits and high risks, against low deposits rates of as low as 2 percent also attributed also to the short term deposits penalise borrowers and discourage savings.
“Government will, through the Reserve Bank, continue dialoging with Bankers’ Association of Zimbabwe with a view of narrowing interest rates spreads.
“If the situation does not change, Government will have to take corrective measures through he necessary statutory instruments,” said Biti.
Meanwhile, a Depositors’ Protection Corporation Bill, which seeks to remove the Depositors’ Protection Board from the Banking Act would set to be presented to parliament.
Under the current reforms it is expected that depositors will be able to get their money on time after their bank has been shut.
At the height of the crisis in the banking sector in 2005, most of the creditors, as depositors were referred to, had to put up with the torture of watching their hard-earned investments shrink in value.
The Depositors’ Protection Board is a statutory body formed in July 2003 under the Banking Act 24:20 to protect the interests of depositors and their savings.
Operations of the DPB are, however, not confined to those clients with money in commercial banks, but cover merchant banks, building societies, finance houses and discount houses.
The creation of the fund is a Government policy response to a growing need to moderate instability in the banking sector and to protect the public, especially the small depositors, against the worst consequences of bank failure.
The fund offers limited coverage and guarantees that small depositors will be paid in full up to the insured amount in the event of bank failure. Currently, the prescribed maximum deposit compensation covers in full 93 percent of all depositors operating accounts in contributory institutions.
The board works closely with the Bank Supervision Department of the Reserve Bank.