Business Reporter

GOVERNMENT will this year concentrate on stabilising and redefining the country’s financial services sector to promote long-term financing and a culture of savings.

Finance Minister Tendai Biti said Government was consolidating 2009 gains after implementing viable stabilisation policies such as the adoption of stable multiple currencies, liberalisation of the current account and the removal of price controls and distortions.

“The year 2009 was a year of consolidation and this year we are going to concentrate on redefining the financial services sector.

“Short-term financing of 30 to 90 days is being availed to the economy and during this stabilisation period financial institutions should be able to advance long-term financing to the economy,” said Minister Biti.

He said there was a huge gap between deposit rates and prime rates, a state of affairs that was discouraging savings.

Authorities felt that financial institutions should do more to promote the productive sectors of the economy through long-term lending.

There has been a serious mismatch between the needs of industry and what the banks can offer.

Industry, which has been reeling under the weight of a severe economic downturn for a decade, is in serious need of long-term loans for capitalisation purposes yet the banking sector is unable to offer such loans for the same reasons

Currently financial institutions are not paying interest on deposits while lending rates are between 20 percent and 30 percent for between 30 and 90 days.

The Reserve Bank of Zimbabwe last year proposed thresholds to guide banks in their lending to productive sectors.

Under the Central Bank proposal, banks are required to achieve 30 percent loan advancement to agriculture, 25 percent to the manufacturing and mining sectors, and 20 percent to other sectors.

The RBZ, working with the Ministry of Finance, is expected to instil confidence in the banking sector to ensure that depositors are comfortable with investing for longer periods.

Analysts say over 90 percent of the deposits in the economy were under 30-day investments, meaning that as at the end of October 2009, US$914 million was in transit, leaving the market scrambling for just US$102 million.

However, companies are struggling to raise capital for restructuring due to punitive interest rates being charged on short-term money.

It is estimated that about 98 percent of bank deposits in the country are presently transitory, making it difficult for banks to structure long-term loans.

The country’s loan-to-deposit ratio, which was gauged at 49,3 percent as of October 31 2009, is still considered to be below international levels of between 70 percent and 90 percent.

Zimbabwe’s economy is expected to grow by a marginal 7 percent this year.

However, Minister Biti said Zimbabwe still stood a chance achieve double-digit growth were it not for the current political uncertainty.

It has been noted that the financial sector grows in direct proportion to the size of the economy. The sector needs to be capitalised to offer efficient financial intermediation.

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