RBZ lauded for lifting lending ban
The suspension on bank lending was lifted yesterday by the Reserve Bank of Zimbabwe, although those under investigation for abuse of past loans still cannot borrow, to the general relief of most stakeholders and with economists saying the authorities still must guard strongly against abuse of borrowing.
The RBZ yesterday lifted the temporary ban on lending by financial institutions imposed through a circular on Monday last week to implement a general Government decision. But it made it clear there were groups of businesses and people who were excluded from new loans, those under probe by the central bank for loan malpractices. There is a list of these sent to all banks.
The central bank said in a statement: “The lifting of the suspension does not apply to those entities that are under investigation by the Financial Intelligence Unit for abusing loan facilities to the detriment of the economy. The unit has accordingly advised all banks of the affected entities.”
On May 7, President Mnangagwa after discussions with his economic advisors announced a raft of measures to stabilise the Zimbabwe dollar and restore order in the market.
These measures included the suspension of lending by banks to the Government, corporates and individuals to curb the growth in liquidity and money supply.
The Zimbabwe dollar was falling against the United States dollar on the black market, despite the sound economic fundamentals, leading to wanton hikes in the prices of basic consumer goods.
That prompted the authorities to act in a quest to hit the underlying causes in the black market rate fluctuations and so stop the downstream price rises.
To shed more light on the possible reasons behind prevailing exchange rate volatility and consequent rising inflation, RBZ Governor, Dr John Mangudya told The Sunday Mail last week that the temporary ban was a necessary inconvenience aimed at getting to the root of the headwinds confronting the economy.
Some companies were borrowing huge sums of money from banks and offloading them on the parallel market, thus manipulating the exchange rate for gain and hoping to use a crashing exchange rate to cover their interest bills and still show a profit.
In an interview with The Herald yesterday, economist Mr Persistence Gwanyanya shared similar sentiments, saying whether the suspension on lending by banks was “the best measure” to break “the vicious circle” remained debatable but there was “consensus” that some form of intervention was required.
“Analysts can argue about the extremeness of the suspension of lending as a measure taken by the Government, but they don’t argue about the need to break the vicious circle involving lending, stock market exuberance, and pressure for forex on both parallel and auction markets,” said Mr Gwanyanya.
“Some are of the view that a more cautious approach involving the use of prudential lending guidelines would achieve better results,” he said.
Mr Gwanyanya highlighted that corporates in Zimbabwe were over-borrowed in local currency terms as testified in Zimbabwe dollar portfolio loan-to-deposit ratio, which he said now approaches the 100 percent mark. It is balanced and supported by negligible lending of foreign currency by banks.
“Though the total loan-to-deposit ratio has remained relatively low, and within our target of 70 percent”, he noted.
“The mere fact that the total loan-to-deposit ratio is around 50 percent when Zimbabwe dollar portfolio loan-to-deposit ratio is about 100 percent, shows that there is a lot of leveraging on US dollar (nostro) deposits for Zimbabwe dollar loans.
“This is happening at a time when foreign currency deposits are averaging between US$1,4 billion and US$1,8 billion. The holders of that foreign currency would simply use that money as security for Zimbabwean dollars.
“And, it’s possible for them to borrow billions of Zimbabwe dollars, which will then be used to acquire foreign currency on either the parallel market or the auction system. Hence, pushing up exchange rates.”
Confederation of Zimbabwe Retailers president Mr Denford Mutashu weighed in, saying the fight against inflation and black market rates was a collective effort.
He implored both the business community and the general citizenry to embrace initiatives by the Government to rein in elements of mischief causing havoc on the economy.
“The suspension on loans was necessary. It is unfortunate that certain quarters of the business community are perceiving the measures as counterproductive, but I think we have to strengthen our financial services sector and ensure that we eradicate dead and unproductive money in the economy,” said Mr Mutashu.
He added that corporates and individuals should focus on productivity, instead of chasing unproductive money through borrowings as such speculative tendencies fuel the black market exchange rates and stoke inflation.
Mr Mutashu said the need to deal with the “shadow market” remained paramount to ensure formalisation of the economy through close monitoring of activities of entities and individuals. Herald.