Zimbabwe: Tobacco Sales Lift Bank Deposits

Source from:  Financial Gazette 06/11/2012

Total banking sector deposits rose 21,2 percent in the first five months to US$4 billion from US$3,3 billion recorded last year as tobacco sales provide some inflows in the local money market which is currently reeling from liquidity challenges. Whilst the banking sector continued to witness significant growth in deposits, loans and advances declined by 3,45 percent as the sector had loaned out US$2,8 billion by mid-May out of the total deposits from US$2,9 billion as at December 31, 2011. Loan-to-deposit ratio declined to 70 percent from 87,4 percent in December 2011 which is in line with the 30 percent prudential liquidity ratio prescribed by the Central Bank. The Reserve Bank of Zimbabwe (RBZ) Governor, on February 16, 2012, increased the prudential liquidity ratio from the 25 percent to 27,5 percent by March 31 and 30 percent by end of May 2012. The gradual increase to 30 percent by end of May 2012 implies that the Central bank wants banks to reduce their loan-to-deposit rations to at most 70 percent so as to better manage their liquidity. However, an analysis of financial statements for banks as at December 31, 2011 showed that locally-owned banks had high loan-to-deposit ratios around 85 percent when compared to the conservative lending approach by international banks which had significantly lower ratios of around 40 percent. Various banks are still facing liquidity problems due mismanaging their liquidity gap and have created huge asset and liability mismatch which ultimately creates a liquidity crunch. Bank mobilises deposits of varying tenor periods and should also lend the money in a way that ensures that it can meet its contingent liabilities. The short nature of deposits and the incessant rolling over of outstanding loans has also precipitated the liquidity crisis across the banking sector. This is largely a result of bad banking practices by non-adherence to the proper principles of lending. Meanwhile, tobacco worth US$415,9 million from 111 million kilogrammes has been sold since the beginning of the marketing season in February, representing a 49 percent change from last season when a total of 104 million kilogrammes worth US$279,6 million was auctioned during the same period. If the trend continues to the end of the selling season we expect tobacco earnings to reach US$500 million, a growth of 38 percent from US$361 million earned in the previous season, helped by firming prices and rising global demand for the country's flavoured tobacco and the reduction in global output by 200 million kilogram in 2012. Prices have been competitive this year, with the average price per kilogramme of US$3,75 is 39,5 percent above the average price (US$2,69) achieved during the same period last year. Top quality leaf, which made up 13,2 percent of the mass sold, achieved a good average price of US$4,75 per kg. The 2011/2012 production is expected between 133 million kilogrammes and 150 million kilogrammes but still remains a distant behind the peak production of 237million kilogramme achieved in 2000. The quality of the crop this year also shows improvement given the decline in the rejection rate to 5,21 percent from 6,8 percent during the same period last year.Enditem