Cash crunch hits banks



Low deposits have hit local banks as the liquidity crunch pushes more depositors out of the formal banking channels, Business Times can report.

This comes following a decision by the Reserve Bank of Zimbabwe (RBZ) to tighten its monetary policy stance, mopping excess liquidity in the market as part of efforts to contain volatile exchange rates and ring annual inflation.

“Market liquidity is tight. There is a huge slowdown of deposits and this is a cause for concern,” the Bankers Association of Zimbabwe CEO, Fanwell Mutogo told Business Times.

ZB Financial Holdings group CEO, Shepherd Fungura concurred saying: “The deposits are very low. We don’t know where it will take us. Some days you don’t have any customers depositing cash. So, it’s a very difficult situation we are in right now.”

There are growing fears that the liquidity crunch could result in some banks collapsing as their lending functions could be reduced drastically.

There are also fears that depositors may fail to access cash.

Business Times can report that a certain local bank (name withheld) has been battling severe liquidity crunch for the past month.

An executive of another bank, who asked not to be named, said the financial institution would go for some days without deposits.

“We are not sure how long the situation will continue for; it is really a wait-and-see approach,” said the bank’s executive.

During a liquidity crunch businesses and consumers are charged high interest rates on loans, a situation which makes it difficult for them to repay the loans.

The RBZ recently increased the interest rates to 200% from 80%.

Multiple economists said the RBZ measures were not bad but there was a need to strike a balance between the quantity of money in circulation, regulating and starving the economy.

This also comes as business leaders last week said the liquidity squeeze was troubling companies.

They said they are failing to access funding and maintain adequate cash flow levels.

Analysts said the introduction of the gold coins would take the Zimbabwe dollar out of the market.

So far over 7000 gold coins have been sold with over ZWL$8bn being mopped out of the market.

The local currency remained under pressure as annual inflation continued on an upward trend, jumping to 285% in the month of August from 257% in July.

The RBZ expanded its monetary measures, tightening money supply and curtailing speculative activities to contain inflation.


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