The increase in bank deposits within the four months was merely transitory, thus the funds could not be used as long-term loans.
Analysts said over 90% of the deposits in the economy were under 30-day investments, meaning that as at the end of October US$914, 4 million was in transit leaving the market scrambling for US$102 million.
“The dominance of short-term deposit together with absence of lender of last resort is affecting the banks’ ability to advance money to borrowers,” said an analyst at Kingdom Financial Holdings.
Among the deposits were statutory reserves, foreign currency account balances, Zimbabwe Revenue Authority funds and government money in transit which cannot be lent out.
This resulted in continued illiquid position on the market.
Trends showed that the traditional four big banks accounted for more than half of the deposits at 61%.
CBZ had the largest deposits at US$250 million followed by Stanbic with US$150 million while Barclays and Standard Chartered had deposits of US$112 million and US$103 million each.
There has also been an increase in the amount of loans advanced by the financial institution, though on a short-term basis.
As of October, US$501 million loan advances had been made compared to US$263 million in June.
An improvement in loan advances resulted in a corresponding increase in loan-to-deposit ratio to 49,3% up from 37,3% in June.
Most of the loans which have been advanced were limited to short financing for working capital requirements with short payback periods.
Two weeks ago, the Reserve Bank set thresholds to guide banks in their lending to productive sectors.
Banks are required to achieve 30% loan advancement to agriculture, 25% to the manufacturing and mining sectors and 20% to other sectors.
Analysts said compelling banks to lend under these thresholds without looking at the nature of deposits which are being made might be missing the point.
“Confidence building in the banking sector is essential to ensure that depositors are comfortable with investing for longer periods,” said the analyst from KFHL. “The dollarisation of the economy and the resulting demonetisation of the Zimbabwean dollar impacted negatively on banking institutions as Zimbabwe dollar deposits were rendered useless.”
Economic agents which may be cash rich have chosen to keep foreign currency holdings rather than depositing them with financial institutions until a time when there is solid confidence in the banking institution.
Confidence may return if depositors are certain that the banks are on solid bases, especially after fully meeting the statutory minimum capital requirements.