Govt tightens screws to fix cash crisis

16 Jun, 2016 - 16:06 0 Views
Govt tightens screws to fix cash crisis

The ManicaPost

Kudzanai Gerede Business Correspondent
Just when the memories of hyper inflationary adversities that dissolved public confidence in the local banking sector were fast fading, the ghost of the
dreaded era is once again lurking around at a time when the financial services sector was showing tremendous signs of growth.
This week Finance and Economic Planning Minister, Patrick Chinamasa revealed that bank deposits have dropped by 40 percent in the past month
as a result of hoarding and externalisation of the US Dollar currency by unscrupulous business players amid fears of the introduction of the Bonds notes
which has further fuelled the shortage of cash in the country.
Last month the Reserve Bank of Zimbabwe (RBZ) Governor, Dr John Mangudya announced the imminent introduction of the bond notes into the
local economy to complement the multi-currency basket as a measure of mitigating the cash shortage which was already pinching by then.
The bond notes are meant to relieve concentration on the US Dollar and together with other currencies like the Rand, Euro and Yuan offer
alternatives as mediums of exchange in the wake of depleting US Dollar currency circulation.
The RBZ timely intervention has however been met with stiff resistance especially from wholesale and large retail dealers who are allegedly
hoarding huge amounts of the US dollar without banking it for continuous circulation in the local economy. Most of the large wholesalers acquire their
stocks outside the country hence the outward flow of huge amounts of cash.
The RBZ recently announced that it will authorize and encourage payment of foreign suppliers in their home currencies with the same to be done in
the exportation of profits derived from local branches to their foreign owners to curb the US dollar leakages from the domestic economy.
Having noted a massive drop in bank deposits, the Central Bank has been prompted to evoke a clause under Section 11 of the Bank Use Promotion
Act which stipulates all traders and parastatals to deposit with a local finance institution all cash received that is surplus on that particular trading day or
the next day unless they have a good reason of not doing so. According to the Finance Minister, the RBZ was investigating larger cash generators such
as telecommunications companies, wholesalers and retailers who are suspected to be shunning the local banking system.
Analysts have lamented the heinous effects of plummeting bank deposits since the Central Bank chief announced the imminent introduction of bond
notes into the economy citing it as likely to dampen local banks’ capacity to lend finance to businesses at a time when borrowing for infrastructure and
mechanization to kick start production was crucial.
With low bank deposits experienced, observers fear that there is a tendency of hiking interest rates by local banks as a way of remaining afloat the
current tides in the financial services sector which is likely to derail all the efforts exhausted by the Central Bank in recent months cajoling finance
institutions into lowering their interest rates from highs of 28 percent as at last year to 15 percent currently.
The sudden turn of events come at a time when deposits had started increasing especially those of a long term nature following the exemption of tax
on interest earning from long term deposits which have been held for more than 12 months as enunciated in the 2016 National Budget Statement which
was aimed at reigniting a savings culture.
According to the Zimbabwe Economic Policy Analysis and Research Unit (ZEPARU) Economic Barometer 2015, the share of long-term deposits in
total deposits increased in 2015 to 21,6 percent from 18.29 percent the previous year and was likely to continue on a positive note in 2016 following
Government measures to increase savings and boost confidence in the sector.
The amendment of the Banking Act which was approved by Government in 2015 which criminalizes negligence on and abuse of depositors’ funds
by bankers, is also intended to promote growth of long-term deposits and improve confidence in the banking sector.
However economic commentators have bemoaned Dr Mangudya’s timing of the bond notes announcement when the country was battling liquidity
and cash shortage challenges raising skepticism of a man who is widely known for sympathizing with the Zimbabwean population which lost lifetime
savings in 2008 by his preference to use the euphemism; Zimbabweans are“financially traumatised” over the blunt description that they lack
confidence in the banking sector.
“The challenge facing the monetary authorities is to work towards restoration of people’s confidence in the banking system given its history and the
uneasiness caused by the pronouncements made last month,” noted Mr Pepukai Chivore, an economist.
“When the Central Bank made impromptu announcements on bond notes, depositors rushed to withdraw their money from financial institutions due
to misconceptions about the future. At the same time those who were making frequent deposits like retailers, wholesalers stopped taking their daily
takings to the banks partly because of the uncertain future and partly because they want to remain liquid to finance day to day operations like
restocking which cannot be done using plastic money,” he added.
Zimbabwe is importing over 80 percent of its consumables and other wares beyond its borders hence the talk of bond notes has forced most dealers
to keep hold of the US dollar in their disposal rather than bank it and risk withdrawing it in a different form of currency.
Commentators argue that when the pronouncements about the bond notes were made the Central Bank might have downplayed the concept of
rationality expectations on economic outcomes. Depositors would easily keep their money where they feel it’s safe and secure not only from corrupt
systems, but also from economic shocks, hence, the sudden edict attracted an impulsive withdrawal of savings from the public and especially
huge cash handlers like wholesalers whose suppliers outside the country would naturally demand payment in foreign
currency.
However while the Central Bank’s blitz on wholesalers and big retailers is expected to whip business players into line with the
intention to boost bank deposits, the Central Bank is also overlooking bottlenecks evident on its own doorstep which are
deterring depositors from setting foot in the banks.
The plastic money usage the RBZ and the other bankers are encouraging the public to embrace poses a challenge for the
banking public in several ways.
The Point Of Sale machines are frequently offline and the charges are exorbitant and this is coupled with stringent conditions
set by the sellers that for someone to get cash-back one has to buy something worth twice the amount that one want as cashback which is very inconvenient.
Individual depositors are also shying away from the banks since the cash shortages started as the flat withdrawal charge of at
least $3,50 per transaction was compelling them to withdraw everything in their accounts given a chance to do so even if one
needs US$20 for fuel for example.
What this entails is that depositors cannot keep their money in the bank and make frequent withdrawals of small amounts to
finance day to day needs when they are charged $3,50 for every withdrawal they make no matter the amount.
However the RBZ issued a statement late Tuesday afternoon that bank charges on electronic transactions were to be slashed
to improve usage of plastic which was expected to see individuals being attracted to deposit their cash into the banks.
POS transactions up to US$ 10 will now attract a charge of US$0,10 while those above that threshold will attract a fee of
US$0,45 and automated teller machine (ATM) withdrawals would attract a maximum of US$2,50.
“The solution to this is for Central Bank to direct banks to charge a specific charge, say 0,05 percent of the withdrawal amount
as their withdrawal charges.
“Another issue is the interest offered on deposit and monthly account maintenance charges which are working against saving which the
RBZ must look into,” stressed Mr Chivore.

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