Presenting the 2010 National Budget before parliament on Wednesday, Biti said following a surge in bank deposits to $1 billion in October from $475,5 million in April, banks should shift from a “conservative to aggressive” lending position to support key economic drivers — agriculture, manufacturing and mining.
Of the deposits, long-term deposits accounted for about US$15,8 million, with the balance in short-term deposits.
Biti’s warning comes a week after Reserve Bank governor Gideon Gono last Friday threatened foreign-owned banks with unspecified action if they continued with the current lending pattern.
“However, given the short-term nature of deposits, financial institutions were forced to structure their lending in short-term credit financing largely comprising 90 days at effective annualised lending rates ranging from 8% to 16%, which remains too expensive compared to the regional average lending rate of 7%, Biti said.
The increase in deposits, the minister said, should see the loan-to-deposit ratio spiking to 80% from current levels of 50%.
“Of the total lending, the distribution, manufacturing and agriculture sectors collectively received about 70,6% of total loans and advances as at 30 October 2009… If persuasion does not succeed we will employ the powers we were given in terms of Section 31 of the Banking Act. It is unacceptable and it doesn’t encourage savings. We are imploring the banking sector to listen to the words of wisdom.”
Banks pay an interest of between 0-3% on savings while the prime lending rate is between 8-16%.
Referring to cash-rich foreign-owned banks that surpassed next year’s US$12,5 minimum capital requirements for banks, Gono said the central bank was “deeply concerned at the continued extreme aversion to lending by some banks which are holding vast amounts of deposits without extending loans to the productive sector of the economy”.
“These banks, mainly those with foreign ownership have not taken heed of our moral calls to the banking sector for them to be more supportive of the productive sectors of the economy through lending,” Gono said.
Meanwhile Barclays bank recently pledged to raise their lending commitments by year end.