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(HERALD) Growing bank deposits set to boost economy

Growing bank deposits set to boost economy
Friday, 13 January 2012 00:00
Golden Sibanda Senior Business Reporter

THE banking sector could contribute 9,3 percent to the Gross Domestic Product this year as growing deposits allow greater financial mediation by financial institutions.
According to FBC Securities, the banking sector had weathered economic drawbacks from the decade of instability and was now poised to play a major role in economic growth.

"In light of these developments, the banking sector has made a dramatic turnaround since then," said the FBC, "with the money spinning sector expected to contribute 9,3 percent to Zimbabwe's GDP this year."

FBC Securities said an efficient and healthy financial system was a vital component for faster economic development.

Other major contributors to GDP are agriculture, with an estimated 16 percent, mining at about 15 percent and manufacturing, which reportedly contributes just over 10 percent to national output.

"Judging from a casual relationship between the financial sector development and economic recovery, the banking sector stands a huge chance to remain on the mend," the securities firm said.

A new lease of life was breathed into the financial sector in early 2009, following the adoption of the multi-currency system, which helped to restore confidence in the sector, reigniting the culture of saving.

Finance Minister Tendai Biti has projected the economy to expand by 9,4 percent this year from 9,3 percent last year, 8,1 percent in 2010 and the 4,5 percent in 2009.
In that regard, the understated GDP - the value of goods and services produced by a country in a year - is projected to close the current year at US$11,9 billion from US$10 billion in 2011.

Economic analyst Mr Witness Chinyama said the banking sector contribution had all along been underestimated, although the sector plays a significant role in economic growth and development.

Mr Chinyama conceded that the sector was poised for a major contribution to GDP this year as deposits increase.

But it said continuing liquidity problems would constrain its full contribution potential.

"Depositor base is growing and is estimated to have reached US$3,5 billion at the end of last year," said Mr Chinyama. "It is expected deposits will reach US$4,5 billion by the end of this year. There are challenges currently for banks to offer long-term loans. Although deposits are rising, lending remains short term."

Deposits in the banking sector grew exponentially from about US$200 million in February 2009 to US$3,5 billion by the end of last year and were projected at US$4,5 billion by December.

Prior to the introduction of the multi-currency system, the culture of savings had been eroded due to hyperinflation, high levels of unemployment and widespread cash shortages.

During this period, most traditional banking products disappeared from the market on the back of the economic meltdown, inconsistent macro-economic policies and high lending rates.

But with the economy maintaining positive growth over the last three years, FBC Securities said the soundness of the sector would persist since its profitability is correlated to economic growth.

While only a few banks are now offering loans with tenure of up six months, the majority are still giving between 30- and 180-day loans, which limits the impact of the funds on the economy.

Labels: BANKING, GDP ZIMBABWE

posted by MrK @ 10:00 AM