The Sunday News
INDUSTRY has called upon the Reserve Bank of Zimbabwe to compel local banks to put an interest of around 7 percent and 8 percent on deposits.The move, industrialists say, would help liquefy the economy by attracting cash flowing in the informal sector into the formal financial system.
Speaking during the open session of the Confederation of Zimbabwe Industries (CZI) annual general meeting last week, past president Mr Callisto Jokonya said the mechanism of attracting cash into the formal system was simple.
“If these guys (local banks) are getting lines of credit coming in at 10 percent or 11 percent wouldn’t it be logical to give local depositors, say, 8 percent interest. This way they will come and deposit the money, which will then come to us cheap yet it is local,” said Mr Jokonya.
“This is one of the structural issues affecting industry that need to be attended to because banks are making profits, yet depositors are not getting any interest.” The key challenge affecting Zimbabwe’s manufacturing sector is that of financing, with the few offshore credit facilities that are available being very costly since the fund providers put a very high risk premium on the country.
Dairibord CEO and chairman of Barclays Bank Zimbabwe Mr Antony Mandiwanza concurred: “There is a lot of money which is in the informal sector, which suggests that people are not depositing money into the formal sector through the banks. The reason is also understandable.
“Why would I put money into the bank and get zero interest, what would be the logic for doing that? I would rather keep that money out of formal circulation and deal through informal channels.
“That argument is understandable. Surely it becomes an intervention issue for the central bank,” said Mandiwanza.
The RBZ, which was represented at the event by Economic Research and Policy Enhancement Division senior division chief Mr Simon Nyarota, acknowledged the viability of the idea.
But the central bank appears cautious about taking general interventionist policies against the banking sector. “As a central bank we are trying to avoid control because banks always find a way of going around those controls,” said Mr Nyarota.
Last year, the local banking sector witnessed a decline in profitability, due to an economic slowdown, but also due to the memorandum of understanding that was signed between the RBZ and banks which regulated charges and interest rates at the beginning of the year.
In percentage terms, the banking industry recorded a 46 percent decline in profitability in 2013. — BH24.
