Previous gains under threat – Agribank

Eric Chiriga

THE loss of business confidence will result in reversal of the gains made in the last financial year, unless controlled, the Agricultural Development Bank of Zimbabwe (Agribank) has said.
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Shepherd Makonyere, the acting chairman of Agribank, said the reporting period has seen a decline in business confidence which, if not checked, may reverse gains made in the 2004 financial period.


Both local and foreign investors have lost confidence in Zimbabwe’s economy, saying it is highly unpredictable.


Currently, the country is not getting any significant Foreign Direct Investment (FDI).


Makonyere said last year business witnessed appreciable moves towards macroeconomic stability, but things are turning negative again.


“While a steady decline in year-on-year inflation was registered in the period from 623% in January last year to 124% in March this year, a reversal of the trend has been recorded since then,” Makonyere said.


From April to June, inflation rates of 129%, 144% and 164% were recorded and the rate recently increased to 254%.


In the belief that inflation was sustainable on a downward trend, the Reserve Bank of Zimbabwe (RBZ) governor, Gideon Gono, reduced overnight accommodation rates from 189-199% in July 2004 and 110-120% in December 2004 for secured and unsecured borrowing respectively.


These rates were projected to decline steadily to between 70 and 80% by June this year.


However, due to reversal in the inflation trends, rates were raised from 160-170% in May and subsequently from 190-200% in July.


Makonyere said the principal source of the inflation remains foreign exchange shortages and its consequent effects on the supply side of the economy.


He said last year the limited supply of foreign currency led to a depreciation of the Zimbabwe dollar by 595%.


The dollar depreciated by a further 200% at the beginning of this year as the central bank endeavoured to maintain export competitiveness.


In a bid to solve the chronic foreign currency shortage, the RBZ introduced the foreign currency auction which unfortunately can only allot a maximum of about US$50 million per month.


In their results for the half-year ended June 30, Agribank recorded a pre-tax profit of $14,9 billion.


However, the bank had bad and doubtful debts of $94,1 billion, which Makonyere said were due to the incidence of crop failure caused by the severe drought of 2004/5 cropping season and wilful default in some cases.


Agribank’s capital adequacy ratio is 6% which falls short by 4% to the RBZ minimum prudential ratio of 10%.


“This has arisen as a result of a reclassification of government’s loans amounting to $954 billion whose terms and conditions were not clarified at the time of disbursement.”


The loans had been treated as grants from government.

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