COMMERCIAL banks that were used by the Reserve Bank of Zimbabwe (RBZ) to disburse funds to troubled companies under the Productive Sector Facility (PSF) are likely to be caught in the crossfire
if companies that accessed the funds fail to pay up by the end of this month.
The companies were last month given up to the end of this month to pay back the funds they borrowed last year. The PSF loans were dished out to the productive sector at concessionary rates of 30 and 50%.
After the deadline, the RBZ will debit the accounts of the banks which disbursed amounts that are not paid up at current interest rates. The bank will have to deal with the companies (clients) that failed to pay up.
“Administering banking institutions should ensure full performance as failure to do so would leave the RBZ with no option but to debit the banks with the outstanding PSF amounts,” RBZ governor Gideon Gono said.
“Where there is default, market rates will start to apply for any outstanding balances under the PSF programme beyond June 30, 2005.”
Gono said this was a corrective measure to deal with errant companies accused of diverting the money to non-core activities. In his previous statements Gono has also fired a broadside at some recipients of the PSF saying some of them used the funds to pay out massive dividends.
He said some of the companies also used the funds to pay hefty salaries to senior managements. Companies have however denied the allegations saying the failure to pay was due to the skewed economic fundamentals.
They also indicate that payback period was too small to be of any meaningful value.
Gono also said banks that deliberately delayed passing on funds to borrowers in a bid to cover their own market positions or investing the funds for their own benefit would be penalised using the prevailing unsecured overnight rate for the period of deviation.
So far, penalties amounting to $13,1 billion have been charged on banks that delayed passing funds to beneficiaries by more than five days.
“A penalty at unsecured overnight interest rates will be charged on the banks that did not pass on funds paid towards partial or full retirement of PSF loans by borrowers before maturity date to RBZ,” Gono said.
Gono also said that the inflating of requirements by borrowers thus crowding out other deserving borrowers will result in suspension of perpetrators from benefiting from the facility in future and the excess amount will attract a penalty interest rate.
Economic analysts also said that the request by the RBZ that companies which fail to pay up funds borrowed under PSF by June 30 should pay at the unsecured overnight interest rates of above 170%, will make some companies sink further into debt.
“Companies which fail to meet the deadline, have to adjust their cashflows because they will have to pay more,” Best Doroh an economist at Zimbabwe Financial Holdings (Finhold) said.
Doroh said the increase in interest rates from about 30% which was charged when they borrowed, to 160% now being charged, will increase the operational costs of most companies that fail to meet the June 30 deadline.
However, Doroh said there are some companies which might fail to pay up the debts they borrowed under the PSF because they diverted the funds to other uses.
Through the PSF, companies were allowed to borrow at subsidised interest rates. On the back of the high risk of inflation envisaged over the outlook period, Gono announced a secured lending rate of 160% per annum, daily compound and unsecured lending rate of 170% per annum again daily compound.