Zim banks model in need of review –– Muradzikwa

ZIMBABWEAN banks should review their loan priorities if they are to support the revival of the economy, Development Bank of Southern Africa (DBSA) chief economist Sam Muradzikwa says.

Speaking at the launch of the annual Zimbabwe Independent Banks and Banking Survey yesterday, Muradzikwa has said there was a need to review the banking model in Zimbabwe and questioned banks’ priorities in loan advancement.
“How is it possible that the manufacturing sector in Zimbabwe, with all its unutilised capacity, received just 1,5% of total loans and advances that totalled US$1,3 billion as at September 10,” he questioned.
Muradzikwa said over 8% of total loans and advances had gone to individuals while 17% of total loans and advances went to financial firms during the same period.
“There may well be sound logic behind this, but I would hasten to ask whether the role of banks is to mobilise savings/access lines of credit so as to create a few rich people in the capital markets or is the role of the banks to intermediate predominantly in support of the real economy. I would suggest the latter,” he said.
He said the capital adequacy ratios (CARs) which essentially measure the bank’s ability to cover its lending positions through shareholder equity was generally below average in Zimbabwe. An internationally acceptable CAR threshold is 30%.
“Most banks in Zimbabwe have CARs well below 30%, implying the need for bank shareholders to ramp up shareholder capital of the bank. For many institutions willing to extend credit lines to local banks the low CARs are the major stumbling block and thus banks’ shareholders need to put in more equity into the banks,” Muradzikwa said.
Commenting on the role of the Reserve Bank, Muradzikwa said the central bank was too narrow, restricted and did not resonate with the challenges of a developing country.
He said achieving internal and external price stability through the use of a monetary policy was a noble and desirable objective, but all that it created were necessary conditions.
“So does the central banker go home happy that they have achieved price stability when the majority of the people are poor and unemployed? Therefore central banks in developing economies must come to terms that their role is broader,” he said.
“Central banking in Zimbabwe has almost lost its relevance and completely lost its innocence until full and inevitable dollarisation took place.
“It can no longer act as an effective lender of last resort, neither can they influence the money supply and more importantly the money base of the economy.”
He said with a debt burden of up to US$1,3 billion on the Reserve Bank’s balance sheet, the institution had become a burden rather than a facilitator of economic growth.
Muradzikwa said despite the banking sector being stable since the adoption of multiple currencies in February last year, there were less than one million active accounts, down from over five million three years ago.
“The cost of transactions has risen due to the costly importation of cash which manifests in higher bank charges, cash circulation within the informal sector (and between the informal and formal sector) is poor,” he said.
“Banks appear to be experiencing major challenges in accessing long-term liquidity with international lines of credit simply not forthcoming. At a macroeconomic level, there is a deteriorating balance of payments situation in spite of projected real GDP growth of 5% and a challenging national debt position,” Muradzikwa said. –– Staff Writer.