Banks reject EU financial bailout

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ZIMBABWEAN banks have since last year been rejecting access to credit facilities from European banks for on-lending to productive sectors, citing the possibility of failure to repay the loans because of uncertainty caused by bond notes.

By Owen Gagare

Reserve Bank of Zimbabwe governor John Mangudya introduced US$200 million bond notes, backed by an African Export and Import Bank facility in November 2016, to ease a biting cash and liquidity crunch. The move, however, backfired as it resulted in a crisis in confidence and capital flight causing the emergence of a strong foreign currency black market.

The foreign currency shortages have resulted in massive arbitrage and rent-seeking behaviour as the United States dollar now has multiple exchange rates in Zimbabwe. For instance, one has to transfer up to US$140 from the bank or $120 in bond notes to get US$100 from the thriving black market. The capital flight and foreign currency shortages have resulted in critical sectors of the economy failing to access hard currency for their operations from local banks.

It has emerged that against this background, some European financial institutions, including the European Investment Bank, offered funds to local institutions for on-lending to productive sectors, but were turned down by local banks, fearing they could default on the loans due to limited access to foreign currency.

Ambassador Philippe Van Damme, the head of the EU Delegation to Zimbabwe, confirmed the development to the Zimbabwe Independent, although he was hopeful a solution will be found going forward.

“I cannot comment on possible ongoing negotiations of a commercial nature. But it is indeed true that, notably the European Investment Bank, but also some other bilateral development banks in Europe, have engaged with the local banking community, to offer medium-term credit facilities at competitive, international market rates for on-lending to small and medium sized enterprises (SMEs) faced with a shortage of medium-term investment credit in the Zimbabwean market,” Van Damme said.

“Indeed, the cash crisis and incertitude of last year around the capacity to access hard currency to reimburse those possible credit facilities, have slowed down this financial engagement process but we hope that process can be reactivated once the hard currency crisis has been alleviated in a structural way.”

Local companies are resorting to buying foreign currency from the black market to fund their operations.

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