THE average loan-to-deposit ratio for Zimbabwean banks last year was 65, 01% as banks slowed down on lending following the dollarisation of the economy in January 2009 and persistent liquidity crisis.
The levels are remarkably low compared to a regional average of about 75% recorded during the same period. In his monetary policy statement presented last Friday, Reserve Bank governor Gideon Gono said commercial banks’ loan-to-deposit ratio during the period under review was 61,97%, merchant banks 91,36%, building societies 60,89% and savings banks 61,20%.
“Lending rates remained prohibitive to the productive sectors,” said Gono.
Gono said lending rates ranged between 12% and 18% annually, relatively much higher than the prime lending rate of about 9% prevailing in Southern Africa.
“As liquidity improves, banks are expected to increase long-term lending to the productive sectors of the economy. Such long-term financing is critical to the revival of domestic industries which need to re-equip, refurbish as well as replace obsolete machinery,” said Gono.
MBCA has however been the emblem for an industry being blamed for closing lending taps.
The Charity Jinya-led bank had the most attractive loan-to-deposit ratio of 126,72%. The other commercial banks were Agribank (122,39%), Kingdom (91,36%), CBZ (75%,) ZB Bank (71,20%), NMB (70,55%), TN (68,14%), Metropolitan (66,19%), BancABC (61,02%), FBC (54,45%), Standard Chartered (50,72%), Stanbic (33,90%), Barclays (25,23%) and ZABG 10,63%.
Banks are unique businesses, not only as guarantors of deposits, but also as suppliers of capital without which an economy cannot function, analysts said.
This balancing act is reflected in the value of a bank’s lending as a proportion of the money it has in deposits.
For Merchant banks, Genesis lent more with 109,32%, Interfin (104,32%0, ReNaissance (104,07%), Premier (89,23%) and Premier (38,18%). For Building societies CBZ Buildings’ loan-to-deposit ratio was 181,25%, FBC Building society (103,030, CABS (48,97%) and ZB Bank (43,80%.) POSB the only savings bank in the country closed the year at 61,20%.
“The Reserve Bank has noted with serious concern the continued aloof attitude by some multinational banks towards the need to actively support the domestic economy,” Gono said.
However, the quests for more profits by banks has often been undertaken at the expense of sound lending practices.
Since the economy was dollarsised, the pendulum swung too far forcing the Reserve Bank to attack foreign banks for not lending.
Gono accused internationally owned banks of “paralysing the money and capital markets by sterilising huge domestic deposits which funds they were not passing on to the productive sectors of the economy through lending”.
“The low levels of overall loans to deposit ratios at these banks are a development which is constraining the economy’s recovery,” he said.
The money market remained generally inactive last year, largely due to low liquidity levels.
In the absence of Treasury bills, the only instruments which dominate the local money market are short-term bankers’ acceptances.
Activity in the inter-bank market was also, severely curtailed by the unavailability of Treasury bills, which are regarded as a risk-free instrument for collateral purposes.
The resumption of the lender of last resort function of the Reserve Bank is expected to instill confidence in the money and credit markets.
The Reserve Bank said banking institutions should balance the need for sound risk management and financial intermediation in order to boosts confidence in the financial sector and spur the economic recovery process.