The African Development Bank (ADB) says Zimbabwean banks have been recording low deposits since August this year due to fears of cash shortages in the festive season, political uncertainty and poor performance of the economy.
In its latest Zimbabwe Monthly Economic Review, the ADB said the banks recorded total deposits of $3.59 billion in August compared to $3.7 billion in July – an unfavorable situation reflecting some serious challenges in an economy recovering from years of stagnant growth.
“In this regard, there is need to address challenges that militate against increased deposit mobilization such as weak depositor confidence, high bank charges and low deposit and savings rates in a bid to sustain economic growth,” said the bank.
The ADB said indications are that with the onset of the festive season, associated with increased demand for cash, most people are less willing to keep their money in the formal banking sector in order to avoid any inconveniences associated with cash shortages or bank withdrawal limits.
“There is need for more strategies to mobilize deposits into the formal banking sector. In addition to the decline in month-on-month bank deposits, the composition and the term structure of total bank deposits is also unfavorable.”
Total bank deposits of $3.59 billion in August 2012 consist of $1.93 billion in demand deposits, $1.14 billion in saving and short-term deposits and $0.45 billion in long-term deposits.
"The notable decline in long-term deposits by 21.74 percent, from $0.57 billion in July to $0.45 billion in August 2012, is of concern in view of the much-needed long-term fiinance in the economy," said the bank.
The ADB further said annual total banking sector deposits increased from $2.95 billion in August 2011 to $3.59 billion in August 2012.
Rosemary Siyachitema, director of the Consumer Council of Zimbabwe said people are withholding cash due to fears over cash shortages this festive season and lack of trust in the banking sector.
In terms of inflation, the bank said Zimbabwe is still likely to meet the annual average inflation projection of 5 percent for 2012.
It said despite the current low inflation figures, some inflationary pressures still persist in the economy. “These include the rising international oil prices, rising rent and rates. In addition, limited supply of residential property continues to put pressure on rent.”
The ADB also noted that the government is accumulating a budget deficit which was estimated at more than $21 million in August.
The bank said increased spending, particularly on account of bonus payments within the last quarter, could further worsen the deficit or the government would be forced to cut back on non-wage expenditures.
“To maintain fiscal sustainability, government would need to ensure that total expenditures are contained within the available resource envelop and maintain an expenditure mix that prioritizes growth-enhancing projects.”