Turmoil in Zim banking sector scares businesses

Published: 16 December 2013
CAPTAINS of industry have expressed concern over the challenges in the country's banking sector saying it might lead to depressed business in various sectors of the economy.

The banking sector has always been considered a unique business, not only as guarantors of deposits, but also as suppliers of capital without which an economy cannot function.

However, the latest developments in the country's banking sector have cast a shadow over this uniqueness with captains of industry expressing concern over closure of banks and shortage of cash saying this would hamper companies that rely on short-term loans for sustainability.

Local banks are constrained as they cannot offer long-term credit due to the short-term nature of deposits. As a result, companies have had to rely on expensive short-term loans with interest rates ranging between 15 and 20 percent per annum.

Zimbabwe National Chamber of Commerce president, Mr Hlanganiso Matangaidze, said lack of confidence in the banking sector was going to affect business as most firms relied on borrowing from financial institutions with the latter dependent on deposits from the banking public.

"Naturally we are concerned with these developments as businesses rely on banks for loans and banks rely on deposits. So when the public loses confidence in the sector and stop depositing their money, it spells doom for the industry as well," Mr Matangaidze said.

He said the liquidity crunch prevailing in the economy coupled with a high import bill against low export receipts was likely to result in a gloomy festive season.

"Business will now largely be subdued despite it being the festive season, which then means the whole outlook is gloomy. This was supposed to be the period for companies to realise some profits but the crisis in the banking sector is a cause for concern," said Mr Matangaidze.

Insufficient cash in banks might also be compounded by the fact that most transactions conducted by the Small to Medium Enterprises (SMEs) do not circulate within the country's financial system.

"We had a survey, which was funded by the World Bank called the FinScope survey of SMEs. The document gave us wonderful statistics, which show that $5, 7 billion is circulating within the SMEs. So they are contributing that $5,7 billion to the nation.

"That money is not bankable due to the fact most SMEs don't have access to the banking sector in this country. They are not banking their money because they don't have confidence in the banking system following the high inflation and change of currency, which eroded their earnings," said the Ministry of Small and Medium Enterprises and Co-operative Development permanent secretary, Mrs Evelyn Ndlovu.

Trust Bank became the fourth bank to be closed since the introduction of the multi-currency system while Capital Bank is winding down operations after failing to attain viability. Allied Bank and Metbank have been facing cash problems while media reports have also mentioned Tetrad Investment Bank as also reeling under serious liquidity problems.
- Sunday News
Tags: Banking, Turmoil,

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