Banking confidence in Zimbabwe amidst economic recession

Banking confidence in Zimbabwe amidst economic recession

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By Calvin Manika

IN April the Reserve Bank of Zimbabwe introduced a ZWL$100 bond note causing mixed reactions amongst lay and economic experts. Within two weeks prices soared up with an increase from basic commodities to fuel.

Many people, for the past decade have described the situation as unsustainable resulting in the majority of businesses shunning the banking system and stocking hordes of money home. But bankers insist that, banking is the way of doing business and secure money.

Banking provides facilities for deposits, withdrawals, loans and investments. Banks are financial institutions which are involved in borrowing and lending money. Banks take customer deposits in return for paying customers an annual interest payment.

The bank then uses the majority of these deposits to lend to other customers for a variety of loans. Banks also play an important role in offering finance to businesses who wish to invest and expand.  These loans and business investment are important for enabling economic growth.

Speaking to The Entrepreneurial Magazine, a Harare based economic analyst Leroy Shoriwa said despite the economic depression and some negatives in recession, banking remains a corner stone of every functional economy.

“Banking is important; it promotes accountability of cash inflows and outflows within the country. It makes us understand the movement of money and helps in economic planning. Banking provides a buffer for many industries, if those in agriculture can’t bank their money, it means loans for the next season and support from the banks will be not available,” Shoriwa said.

“During depression sometimes, the banking model cannot fully benefit individuals but benefits the community as a whole. So, the general populace must have bank accounts and transact through banking system for development and savings.”

In August 2021, bureaux de change facilities were allowed to sell foreign currency to individuals at a favourable rate in order to promote financial inclusion and access to foreign currency for low-value transactions. The government then closed the facility for most of the populace expect for pensioners and people living with disability only.

Banks are seen as a secure place to deposit money. Commercial banks pay interest on deposits. For current accounts, this may be very low, but for saving accounts, the interest rate can be significant. In a period of inflation, interest rates on deposits are very important for maintaining the real value of one’s savings.

A Harare resident and client of a local bank, Collins Nhare recalled the long queues and hassles he had to endure to withdraw his money, sometimes for days.

” I have faced long queues for both, to depositing and withdrawing the money. You have to face the hurdles of long hours in the cold or sun. Most of the times I end up thinking it’s better to keep my money home where I can access it anytime, or unlike before the interest rate are not attractive,” Nhare said.

When reached out for comment Zimbabwe Republic Police (ZRP) Harare Province Deputy Spokesperson Assistant Inspector Webster Dzvova said members of the public must avoid keeping lots of cash at home.

“People must use banks not their homes for safe keeping of money. Of late case of robberies involving large amounts of cash is high. In order to fight robberies and thefts we urge people to be proactive by taking necessary action of banking,” Dzvova said.

The parallel market has attractive exchange rates compared to the banks. The black-market shady dealings involve people as they try to get hold of the ever-elusive dollar. While most of the illicit dealings are done in informal settings, productivity levels in the formal sector appear to be suffering a knock, with productive time lost in search of hard cash.

Economic experts suggest that, the government should curb informal and illicit monetary exchanges which continue to be a threat to both governance and national security; and that stringent measures to outlaw corruption from all sections of society and open lines of communication be created that register the people’s discontent with the current monetary policies and systems.

“Banking is paramount for both individuals and companies; most of the small and medium companies who are struggling don’t use the banking system. So, in case of closing shop they cannot access capital loans from the banks. It’s good to be regulated and be accounted, it helps in the way you conduct your business and reduce corruption,” said Jane Chinyonga, an Economic researcher.

On 23 April 2022 the Reserve Bank of Zimbabwe Governor John Mangudya in response to Confederation of Zimbabwe Industries (CZI) on currency situation said the government and the bank are committed to an orderly de-dollarisation process.

“And hence it is false that a mon-currency system is now in place. All foreign accounts are safe and the bank has no reason or appetite to “raid” the accounts as alleged in the CZI paper,” said Mangudya.

According to the World Bank the economy rebounded in 2021 driven by recovery of agriculture and industry and relative stabilisation of prices and exchange rates. GDP was estimated to have grown by 5.8% in 2021 after contracting by 6.2% in 2020.

“An exceptionally good agriculture season, coupled with slowing inflation and higher remittances boosted domestic demand. Relaxed pandemic restrictions, good vaccination levels, and favorable terms of trade supported stronger industrial production and exports, with exports of minerals expanding by over 51% in a year. A widening of the current account surplus in 2021 and the SDR allocation helped increase international reserves,” noted the report.

The World Bank report on Zimbabwe’s economy projected that it will continue to recover in the medium term, amid downside risks. 

“GDP is projected to grow by 3.7% in 2022 but slowdown in the medium term as the positive base effects diminish. The downward revision is based on worsening agriculture conditions (output set to contract by 1.5% in 2022 from double digit-growth in 2021 based on falling rain levels and rising prices of key inputs) and global price increases amidst supply side disruptions,” read the report.

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