Zim crisis deepens as cash deposits dwindle

Zim crisis deepens as cash deposits dwindle
Published: 27 July 2017
COMMERCIAL banks held just $65 million physical cash foreign currency, bond notes and coins at the end of May, central bank data shows, highlighting a mounting cash crisis that has wracked the economy since late 2015.

Zimbabwe adopted the use of multiple foreign currencies, chiefly the United States dollar and South Africa's rand, in 2009 to escape hyperinflation. However, the country plunged into a foreign currency crisis last year as its trade deficit widened and overall output declined as government borrowing crowded out the productive sector.

The diminished stock of notes and coins in commercial bank vaults represents less than one percent of total bank deposits. Experts say physical cash should be between 15 percent and 20 percent of bank deposits.

Physical cash holdings averaged $300 million per month between 2013 and 2014, Reserve Bank of Zimbabwe (RBZ) figures show.

Banks continue to struggle with cash demands, despite a marked increase in the use of electronic payment platforms and the introduction of bond notes last November.

The RBZ, which is planning to inject more bond notes into the economy, says $160 million worth of the surrogate currency is currently in circulation.

However, banks held $12,36 million worth of bond notes and coins at the end of May, with the stock of foreign notes being $52,63 million.

The latest available central bank report on the financial sector, for the first quarter of 2017, has passed banks as stable, despite a deepening foreign currency crisis.

Out of 19 banking institutions operating in the country, 16 recorded profits during the quarter, with aggregate net profit reaching $50,34 million.

But analysts caution that the sector faces significant risks.

"On the surface, the financial sector seems stable and remained quite resilient in 2016 despite the uncertainty around the growing exposure to Treasury Bills, uncertainty around bond notes and a decline in quality borrowers that continues to impact on asset quality," IH Securities said in a recent research note on banks.

Zimbabwe's strong cash culture continues to exert pressure on banks, the research firm said.

"Bond notes alleviated the domestic currency for a few months but have since also disappeared from circulation. The public's insistence on cash has become a major headache for banks as they are not able to meet this need," the report added.

The introduction of bond notes last year unsettled depositors, whose recent experience with hyperinflation triggered panic withdrawals of currency from banks.

Pervasive foreign currency shortages, largely driven by a huge trade deficit and diminishing capital flows, have seen the revival of an informal forex market which is trading at a premium of up to 30 percent for bond notes and electronic transfers.

This development has also seen the emergence of multiple pricing in the market for various payment options — forex cash, bond notes and electronic transfers.

Transactions in the low-income segment of the economy where informal retail thrives on lower prices are mostly cash-based and this has kept pressure for physical cash.

Government has struggled to find a solution to the crisis and research firm Imara said tight withdrawal limits imposed since May last year had averted a catastrophic run on banks.

"As such, we should expect to see the lack of cash and bank queues to continue for the foreseeable future," Imara said in a recent report on Zimbabwe.
- fingaz
Tags: Cash,

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