ZIMBABWE’S banks are seen ending their Covid-19 inspired cautious lending stance quicker than projected and scale up interventions to prop up ailing industries, according to researchers at Inter Horizon Securities (IHS).
In a banking sector brief recently, IHS downplayed prospects of prolonged weak lending due to protracted headwinds confronting Zimbabwe, saying central bank measures announced this year were likely to cool off volatilities and drive market confidence.
It is a prediction that may surprise the frustrated markets, but IHS head of research Lloyd Mlotswa and his team have placed their heads on the block after a long drawn out lending drought.
“As the economy reboots and post-lockdown operations scale up across the country, FY20 (fiscal year 2020) is expected to offer slight reprieve to the banking sector at large,” IHS said in its update two weeks ago.
“The RBZ is expected to maintain a contractionary monetary policy for the remaining calendar year in its bid to contain inflation. The RBZ recently increased its policy rate from 15% to 35% in a move that was widely welcomed in the sector as the previous rate presented viability challenges. The medium-term bank accommodation rate was reviewed from 10% to 25%. This effectively removed the implied interest rates cap of 20% for banks that accessed the MBA facility, which was seen as one of the factors promoting sub-inflation returns. We hence expect to see more core lending activities, although naturally in real terms, returns remain sub-par,” IHS said.
MBA refers to the medium-term bank accommodation facility arranged by the RBZ to improve industrial output.
However, given the hurdles that firms have encountered in accessing the $18 billion Covid-19 stimulus package, many market watchers still doubt that banks will loosen their purses anytime soon.
The Confederation of Zimbabwe Industries (CZI) said recently it is not just that banks are not willing to lend, they are simply ill-equipped to intervene.
“The bank guarantees (offered by the government) are there but banks don’t have the liquidity,” Henry Ruzvidzo, the CZI president was quoted as saying recently.
“They are only lending small amounts. Ideally, we require external funding for facilities like this,” Ruzvidzo said.
By the end of September not a single business organisation confirmed seeing their members receiving funding through the package announced by President Emmerson Mnangagwa in May.
“The appetite for funding is there in industries,” said Zimbabwe National Chamber of Commerce chief executive officer Christopher Mugaga.
“We may have non-performing loans, yes but companies need working capital funding. The question may be their capacity to repay loans but they are struggling to pay workers, rentals and other expenses. For now, we have not seen any of our members saying they have accessed it,” Mugaga said.
The RBZ itself has called for caution in the way banks lend because the Covid-19 virus has affected cash flows in many consumers and businesses.
“The identification of risk concentrations from an overall portfolio perspective is therefore paramount during this pandemic. In particular reviewing sectoral concentrations of loans is critical given that the pandemic has affected various sectors differently. Against this background, with effect from September 30, 2020, banking institutions are required to submit monthly credit reports on the status of each of their top twenty loans/exposure and a clear strategy for action where there is deterioration in quality of the concerned loan,” the central bank advised banks in August.
This was after loans and advances had increased to $37,7 billion in June 2020, from $6,1 billion this year, with banks keeping non-performing loans (NPLs) under check.
NPLs declined to 1% in June this year, from 5% at the same time last year.
But these low figures do not end up on their book easily.
Banks have trained wolves that rummage through everything that their clients own, almost skinning them to check the colour of their blood, before giving the thumbs up for loans.
“The average prudential liquidity ratio for the banking sector was 74.85% as at 30 June 2020,” the RBZ said in August.
“The high average prudential liquidity ratio was partly due to a cautious lending approach being adopted by banking institutions,” it noted.