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LOANS to the private sector dropped by 0,5 percent in March, signalling constrained lending by local banks on the back of the prevailing liquidity challenges. Credit to the private sector declined to US$3,61 million in March this year from $3,62 million a month earlier, according to latest figures from the Reserve Bank of Zimbabwe.

“The slowdown reflects constrained lending by banks on the back of liquidity challenges, low deposit base and risk aversion due to increasing non-performing loans in the banking sector,” said the central bank in its monthly economic review for March 2013.

Zimbabwe, which adopted the multi-currency system in 2009 is facing serious liquidity challenges due to subdued exports and low foreign direct investment. The $6,4 billion external debt has also prevented the country from accessing long-term loans from multilateral financial institutions such as the International Monetary Fund.

The RBZ said the loans to the private sector were mainly used for recurrent expenditures, inventory and stocks build up, consumer durables and capital expenditures.

Outstanding loans and aances were in respect of agriculture (18,6 percent), distribution (18,2 percent), services (16,1 percent), manufacturing (14,6 percent), mining (6,3 percent), construction (1,6 percent), said the Reserve Bank. Households accounted for 18,1 percent of total loans and aances to the private sector.

“The high proportion of loans extended to households, compared to other productive sectors of the economy, reflects banks’ preferences for lower risk clients, as these loans are salary based and secured by stop orders,” the central bank noted.

The mining sector and construction industries, which require long-term credit, received smaller proportion of the loans and aances, as the banking sector continues to be crippled by liquidity crunch, and extending only short-term loans, it added.

Annual growth in broad money supply increased to 7,78 percent in March 2014, a 2,32 percentage growth, from 5,46 percent recorded in February 2014. The growth in broad money supply is a rebound from “successive slowdowns” which characterised the period increased by $72,2 million or 1,8 percent. This reflected expansions in savings deposits ($15,8 million), demand deposits ($52,7 million) and under 30-day deposits ($74,0 million). Partially offsetting the increase was a contraction in over 30-day deposits, by $70,4 million.

“Broad money continues to be dominated by transitory and short-term deposits,” the RBZ said.

As at March 2014, demand, savings and under-30 day deposits accounted for over 83 percent of money supply.

During the period under review, the value of transactions processed through the RTGS system increased by 13 percent to $3,33 million in March 2014 , from $2,95 million in February 2014 while the volume of transactions also registered an increase of 10 percent, from 175 092 to 192 020 in the same period.

Source : The Herald