23 May 2014

Zimbabwe: Tobacco Inflows Boost Bank Deposits

DEPOSITS held by Zimbabwe's financial institutions improved by 1,8% between February and March 2014 to US$4,1 billion largely driven by tobacco sales, offsetting successive slowdowns which characterised the period August to November 2013, statistics show.

Annual broad money supply growth increased to 7,78% in March 2014, a 2,32% growth from 5,46% recorded in February 2014, according to Reserve Bank of Zimbabwe (RBZ)'s March 2014 Monthly Economic Review.

Cumulative tobacco sales as at March 28 2014, raked in US$121,3 million, representing a significant liquidity inflow into the economy as tobacco is financed from offshore sources, RBZ said.

Latest figures obtained from the Tobacco Industry and Marketing Board (TIMB) show 151,5 million kg of flue cured tobacco worth US$481,8 million were sold in 2014 as at the week ending May 16 compared to 118,9 million kg worth US$440,6 million during the same period last year.

TIMB said the tobacco sales were 27,46% up on prior year in volume and 9,35% up in value terms at a seasonal average price of $3,71/kg.

"On a month-on-month basis, 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% of money supply.

The central bank said on a month-on-month basis, broad money increased by US$72,2 million or 1,8%, reflecting expansions in savings deposits which accounted for US$15,8 million, demand deposits standing at US$52,7 million and under 30 day deposits which stood at US$74 million.

"Partially offsetting the increase was a contraction in over 30-day deposits, by US$70, 4 million," reads the report.

Credit to the private sector declined by 0,5%, from US$3 627 million in February 2014 to US$3 610 million in March 2014. "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," the report said.

Agriculture accounted for 18,6% of outstanding loans and advances while distribution, services and manufacturing, mining and construction accounted for 18,2%, 16,1% and 14,6% of outstanding loans respectively.

Households accounted for 18,1% of total loans and advances to the private sector. The RBZ said 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.

Market capitalisation on the Zimbabwe Stock Exchange declined by 7,06% to US$4,6 billion, at the end of March 2014, from US$4,9 billion in February.

However, shares traded rose by 181,15% in volume terms from 136,16 million shares in February 2014 to 382,80 million shares in March 2014 while total turnover also increased by 205, 63%, due to the absence of special bargain deals, to close March at US$25,82 million.

The central bank said the ZSE industrial index slid by 6,93% between February and March 2014, ending the period under review at 176,32 points, compared to 189,45 points in January. On a year to date basis, the industrial index lost 12,71%.

The report also shows the mining index lost 24,8%, to close at 29,51 points, in March 2014, from 39,24 points in February. On a year on year basis, the mining index lost 35,55%.

"The subdued performance across most counters at the ZSE reflect the general slowdown in economic activity, particularly in key sectors of the economy such as manufacturing and mining," said the RBZ.

"The pervasive liquidity shortages continue to exert a dampening pressure, as most industries struggle to secure medium to long term funding for retooling and refurbishing obsolete machinery and equipment."

Going forward, the RBZ's forecast inflation is expected to remain subdued, in the short term, on account of liquidity constraints and subdued economic activity.

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