FINANCE Minister Tendai Biti has proposed a raft of measures aimed at promoting savings and investment, including foreign direct investment.
Presenting the 2012 mid-term fiscal policy statement review themed “From Crisis to Austerity: Getting Back to Basics”, Biti charged that banks were not playing an efficient financial intermediation role, resulting in what he termed “Vodoo Banking practices” of local banks.
“We are concerned about non existent deposit rates and a banking sector where your money gradually disappears through charges and you are told to top up your account after some time,” Biti said.
According to Biti, interest rates on deposits since the advent of a multicurrency regime have remained low, with savings rates averaging 0–5%, against lending rates of between 18–30%.
This, he said, has undermined efforts to mobilise domestic savings and hence constrained the volume of medium to long-term resources available for lending to the industries.
“Efforts on moral suasion are beginning to yield positive results as some banks are beginning to offer instruments at competitive interest rates, and if supported, should start attracting larger deposits,” he said.
“It is Government’s expectation that many more of our financial institutions will follow suit.”
Biti said where such initiatives were lacking, government might have to institute direct interventionist guidelines to such institutions.
“We want to get to a situation where every deposit in the banking sector earns some kind of positive return,” he said
Biti told parliament that Government would soon start to issue Treasury Bills at lower rates of interest and that authorities were concerned about bank charges.
“It is surprising that CABS is able to offer banking services at half the cost of the other banks. We are saying if CABS can do it so can the others.
“On interest rates, we’re saying our industry cannot sustain rates of above 10%. Industry will not recover at these rates, so we will be putting some measures to ensure that money will be available at less than 10% for productive sectors,” he said.
The financial sector, although resilient and projected to grow by 23%, faces a number of challenges related to capitalisation, liquidity and credit risks.
On financial sector vulnerabilities, Biti said that a number of banks remained weak, with high credit risks, deteriorating asset quality and a high proportion of non-performing loans. The uneven distribution of deposits also compounded the liquidity challenges in the banking sector.
Although some slight improvements were recorded, the real savings rates remained negative, raising the opportunity cost of holding deposits outside the banking system, hence complicating efforts to mobilise savings for investment. In view of the flow of substantial deposits from smaller to bigger banks, the expectations were that the receiving banks should also enhance their lending, without negating the prudential lending principles.