Reserve Bank of Zimbabwe
DEPOSITS in Zimbabwe’s banking industry are slowly mutating towards long-term, a new report said last week, hinting that confidence could be returning back to the financial system following six years of scepticism by a market which lost millions during the hyperinflation years.
Apart from improved confidence, the swing to longer term deposits could also be a signal of the limited investment options on the market, where the Zimbabwe Stock Exchange has been in freefall since January.
There have been no attractive government investments on the market for a long time, forcing investors to keep surplus cash in banks.
It is a positive sign as banks can then lend the funding to the private sector, which has been struggling to access working capital and money for capital expenditure.
A Reserve Bank of Zimbabwe (RBZ) report said last month deposits in the financial sector rose by 7,5 percent to US$4,3 billion in the nine months to September, from US$4 billion in January this year, indicating a significant increase for an industry that, in 2009, only had about US$300 million in deposits.
The country switched to a multicurrency system in 2009 after hyperinflation of up to 500 billion percent affected the local currency.
During the hyperinflation period, many banks closed and the market lost confidence in the system, leading to a situation where amounts estimated to be over US$1 billion were being kept outside the banking system.
Where companies and individuals opened bank accounts, the bulk of the funds were short-term deposits.
But in an analysis of the banking industry covering the first nine months of the year, the Zimbabwe Economic Policy Analysis and Research Unit (ZEPARU) said there were indications that depositors were keeping their funds longer in banks.
“The nature of deposits in banks has shifted slightly towards long-term deposits. These averaged 9,68 percent of total deposits in 2011 but had increased to 19,11 percent in 2014. For the first seven months of 2015, long-term deposits averaged 21,47 percent of total bank deposits, while it only averaged 17,49 percent in the comparable period in 2014. The increasing share of long-term deposits reflects on the one hand improved depositor confidence in the banking system and on the other hand limited alternative investment options,” said ZEPARU.
“Alternative investment options are limited because neither the Zimbabwe Stock Exchange nor government investments appear attractive,” the report noted.
RBZ has been working towards restoration of confidence in the banking system.
The central bank has introduced new stress tests in the financial system to bring stability to the once troubled sector.
The new stress tests are aimed at building strong and resilient banks after the collapse of several banks in the past few years.
Local banks currently stress test themselves using their own assumptions and scenarios.
Tough stress tests are meant to find weak spots in the banking system at an early stage, and to guide preventive actions.
The scenarios would be designed to determine whether an institution is able to weather the impact of adverse developments or not.
The tests would enable the central bank to timeously identify key risks and vulnerabilities and also to ensure that failed banks exit the market with minimal disruptions to the overall functioning of the economy.
The country has experienced over 20 cases of bank failures since 2004 due to serious challenges that ranged from poor corporate governance practices, deep rooted risk management deficiencies and chronic liquidity problems.
There has been growing concern over the growing number of banks that have failed considering the key role that the financial sector plays in the development of the economy.
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