The once vibrant local banking industry is still battling to overcome depositorsâ€™ confidence, capital constraints and other operational challenges, a situation which has threatened the viability of banking institutions.Â Â
With low deposits, banks will find it hard to restore profitability as they make money from lending, but depositors, the source of most bank funds, say they are concerned over high bank charges as they do not encourage savings critical for investment.
The struggling banking sector has once again come under the spotlight as the attention drift from the fiscal policy statement to the forthcoming Mid-Term Monetary Policy Review statement set to be presented this week by the Reserve Bank Governor.Â
Concerns continue to be raised over wide discrepancies between lending rates of over 25% and interest rates on deposits, currently hovering around 2% per annum.
Financial houses are facing a critical liquidity crisis largely caused by low depositorsâ€™ confidence, lack of credit lines as well as the absence of the Interbank market ,a development which is threatening to ruin the industry.
Economic analyst, Mr. Willie Ganda believes there is need to review downwards the obtaining punitive lending rates of above 25% as well as to deal with the perceived high risk in order for the banking sector to regain depositorsâ€™ confidence.
Recently, the International Monetary Fund cautioned that the Central Bank’s weak liquidity position has left financial institutions exposed.
Economic analyst, Mrs. Barbara Rwodzi believes that in the absence of an adequately capitalized Central Bank, it is difficult for the sector to operate viably as there is no lender of last resort.
The banking sector,Â which is still faced with a below US$2 billion deposit level, has received enough share of criticism from industry for failing to advance loans to key sector.
Players in the banking sector have however cited overnight and short-term deposits as an impediment towards long-term planning.
The countryâ€™s banking public which bemoaned the death of a savings culture expressed concern over exorbitant bank charges as the contributing factor to the lack of confidence in the banking sector.
The multi-currency regime has also posed several challenges to the financial sector and recently the countryâ€™s fiscal authorities indicated that treasury will facilitate in the last half of 2010 the importation of smaller denominations of currency and coins.
While most banking institutions have complied with the Central Bank minimum capital requirement directive, analysts however believe the sector is still undercapitalized and requires more capital injection so as to strengthen their capital position and increase investor confidence.
It awaits to be seen whether the forthcoming monetary policy statement by the Central Bank will help stimulate depositors’ confidence, encourage a savings culture as well as breathe life into the ailing banking sector by taking corrective measures through statutory instruments to compel banks to offer viable interest rates on deposits.