Cash Problem: The Blame Game

CASH shortages will persist as banks have little Treasury Bills (TB) that they can use as collateral when collecting money from the Reserve Bank of Zimbabwe.


Information gathered by businessdigest shows that the banks lack sufficient TBs to collect cash from the Reserve Bank  which has put in place stringent conditions to release money onto the market.

 

Although Reserve Bank governor Gideon Gono introduced a new currency, long winding queues of withdrawers continue to be a common feature around the central business district.

Cash shortages are the latest manifestation of Zimbabwe’s multi-faceted economic and political crisis, which has affected the country over the past 10 years

Banks are required to lodge Treasury Bills at the Reserve Bank as collateral before being given cash that meets their client base each day.

Bankers said Treasury Bills which are issued at 340% against official inflation of 2 200 000%  will compromise their earnings and force them to scale down on the amounts they have been procuring  in cash in relation to deposits.

Independent economists estimate year-on-year inflation to be above 10 million percent.

“Government is not interested in paying the right cost for capital,” a chief executive with a commercial bank told businessdigest on Wednesday.

Government has kept this stance since 2005, when the then Finance Minister, Herbert Murerwa said high TB rates were “too expensive and not sustainable” in managing domestic debt when he presented his 2005 national budget.

Bankers who spoke to this paper also said cash challenges are expected to remain entrenched in the economy as long as inflation remains high whilst deposit interest rates are too low to incentivise savers in the economy.

While the Reserve Bank has kept the accommodation rates very high, annualised at 1,5 decillion percent (33 zeros), depositors are languishing with interest rates below 250% per annum.  

The bankers also blamed the central bank for its “abrupt” change in daily cash withdrawals.

The RBZ demands 45% of statutory reserves from banks and this according to officials has seen most financial institutions “hurriedly” offloading their securities portfolios to improve their liquidity positions.

“The recent tumble of the stock market is a reflection of this problem,” said a stockbroker.

“Banks have become victims of abrupt policy changes and disposing of their stocks thus becomes the only option to improve liquidity.”

Confounded with high inflation, depositors would see little incentive to leave money in the banks, especially now when the interest rates on savings and current

accounts are generally below 10% per annum.
When asked by businessdigest to comment on the cash situation, the country’s 15 commercial banks cited general preference towards Bankers Acceptances over TB’s which no longer have the “all important liquidity status”.

Presently, 30 day Bankers Acceptances  are  being drawn in the market at yields around 1 000%, which, when annualised, leave banks raking in returns of about 147 731%.

These returns are well above the TB returns pegged at 340%. Banks have had few TBs accumulating on their balance sheets.

Bankers Association of Zimbabwe president John Mangudya however said cash shortages could end soon.
“What   we   are   seeing   now   is  the release  of pent-up demand for cash which is also a direct indication of the hyperinflationary environment that we are living in,” he said.

Although having what looks like super returns on banks lending books, Genesis Bank has revealed a contrasting picture of the true cost of capital in the region in its weekly bulletin.

Despite banks charging high overdrafts rates in nominal terms, the real cost of borrowing in Zimbabwe appears to remain very cheap compared to Zambia for example where the effective annualised cost of borrowing stood at around 50% in US dollar terms.

Commenting on this aspect, bank’s group economist Brains Muchemwa said “the high cost of borrowing in Zambia is attributed more to the high interest rates relative to inflation, as well as the strengthening kwacha that has  appreciated  13% year to date”.

The  trend  has  seen  most  banking institutions moving away from their core business of making money by lending money to buying properties and participating on the stock market. Recent financial results by banks show that they have included properties they own and ones they have acquired during the financial year on their balance sheets.

Government officials said if banks charge a “realistic market rate” the government would go bankrupt, as it does not have any other source of capital other than the domestic market whose production has been operating below 30%.

Government’s over reliance on the domestic market has resulted in it incurring a domestic debt of $790 quadrillion ($79,6 million), a development which will prompt high taxes for the future generation.

Gono on Monday accused banks of creating “artificial” cash shortages by failing to collect money from the country’s main bank to distribute it to clients.

“Notwithstanding the high levels of cash stocks sitting at the Reserve Bank ready for dispatch into the market, some banking institutions have been noted to be engaging in imprudent and unethical practices which are creating artificial queues for cash,” Gono told journalists and bankers.

“Indepth analysis of banks’  asset-liability  profiles  has  shown  the following glaring malpractices by some banks, non-collection to pay cash for such cash on collection.”

“This inability at some banks is primarily a result of such banks tying depositors’ funds in illiquid speculative investments in the stock exchange, real estate, motor vehicles, foreign exchange and other forms of non-core investments,” he added.

By Paul Nyakazeya

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