Banking sector’s ‘miraculous’ recovery

Zimbabwe's banking sector has made miraculous recovery in three years, raking in $2.8billion in deposits to June 2011, the Reserve Bank has said.

The banking sector collapsed under an unprecedented decade-long economic meltdown that saw inflation top 500 billion percent in 2008. Sanity has been restored to the sector since formation of a unity government that ditched a worthless local unit and adopted the US dollar and South African Rand as the major instruments of trade. The banking sector has made a dramatic turnaround since 2009, with the money-spinning sector expected to contribute 9.3 percent to Zimbabwe's GDP this year.

Out of the $2.8 billion in deposits, banks lent $2.3billion – a loan-to-deposit ratio of 81 percent. The RBZ, however, noted that most of these deposits were demand deposits.

Banks were hesitant to lend to the manufacturing and mining sectors because of the risk factor, with the two sectors getting only 26.6 percent of the cash borrowed out.

The unproductive sector – mainly distribution, services and individuals — got the lion's share of the banks' money – 40 percent.

Economic analysts say the skewed loan distribution favouring the unproductive sector reflected that the sector was risk-free.

"There is no default risk," said economic commentator, Chris Mugaga. Analysts say the banking sector was ambivalent to make long-term loans to the productive sector because the risk was too high.

"The lender of last resort function of the RBZ is now obsolete. The statutory reserves are depleted, so it’s difficult to give out long term loans. Put simply there is no cover," said a Kingdom bank analyst.

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