Zimbabwe could be heading for economic stagnation

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Zimbabwe could be heading for economic stagnation after banks cut their lending to corporates in the first half of the year to May favouring individuals at the expense of crucial sectors of the economy.

Report by Fidelity Mhlanga

In his mid-year fiscal policy statement recently, Finance minister Tendai Biti said bank loans to individuals accounted for 22% , services 18%, manufacturing 16% and agriculture 15% of total loans as at 31 May 2013.

Biti said at the beginning of this year the manufacturing sector was at the top of bank borrowing list, warning the prevailing scenario points a gloomy picture of the economy.

“Most banks were offering salary based loans which are a sign that bulk of credit is going to consumption which is not acceptable in a developing economy. RBZ will continue to monitor these activities,” Biti said.

Economist Eric Bloch said bank failure to offer long term funding could blight the recovery of the manufacturing sector and the economy at large.

“Banks cannot offer long term funding because they don’t have lines of credit. It prevents the recovery of our manufacturing sector. We need to change our policies to attract lines of credit,” Bloch said.

Biti said the level of non-performing loans has been on an upward trend from 1,8% December 2009 to 13,78% as at March 2013 .

He said the deterioration in asset quality was largely attributable to poor loan origination and underwriting standards, siphoning of banks resources through non performing insider and related party loans and poor risk management systems.

Total banking sector loans and advances increased by 5,56% from US$3,401 billion in January 2013 to US$3,59billion as at 31 May 2013. Of this amount, five banking institutions accounted for 56,20% of total banking sector loans and advances.

Demand deposits also decreased during the month of March, declining from US$14,8 million to US$1,965 million.

Biti attributed this decline to the prevailing liquidity constraints, as well as withdrawal of deposit maturities from the banking system.

However, the annual broad money growth rate increased to 14,85% in April 2013 from 10,47% in March 2013.In absolute terms, broad money supply went from US$3,79 billion to US$3,97 billion in April 2013.

The banking sector deposits grew from US$703 million in 2009 to US$4,43 billion as at May 2013. Loans over the same period grew from US$263.5 million in December 2009 to US$3,6 billion as at May 2013.

During the period under review, total banking sector deposits increased by 5,3 % from US$4,2 billion in January 2013 to US$4,43 billion deposits in May 2013 with, 71% held by the top eight banking institutions.

“Since January 2013 the major sources of deposits have remained unchanged with corporates contributing 50,65 % followed by banking institutions and individuals with 16,33% and 14,34% respectively as at March 2013,”Biti said in his mid-year fiscal policy statement.

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