HomeBusiness DigestBanks scale up forex loans

Banks scale up forex loans

TATIRA ZWINOIRA
ZIMBABWE’S banks have increased lending to industries in foreign currency following assurances by the Reserve Bank of Zimbabwe (RBZ) that they won’t be affected by monetary policy shifts, according to Confederation of Zimbabwe Industries (CZI) president Kurai Matsheza.

Banks had been pursuing a cautious lending strategy for several years, saying policy flip flops by the government exposed them to potentially damaging risks in the event that they extend forex loans to companies and the government suddenly makes changes to the currency.

However, in the 2022 National Budget released in November, Finance minister Mthuli Ncube said US dollar loans to companies were due to improve this year as the government was talking to banks.

This comes after the Treasury boss had reported that the overall loan-to-deposit ratios had declined to less than 1% because banks were generally not lending.

The CZI boss said this week: “When you look at the local banks, when we say they need to increase funding to the local productive sector it needs to be a combination of both US dollar denominated funding and also local currency. Right now, if you go to the balance sheets of banks themselves there are some that are already able to lend in US dollars.”

“Of course, they (banks) have been asking for certain guarantees from the Reserve Bank to say ‘if I give a US dollar loan today is there no risk that along the way the policy might change two years down the line, five years down the line, before that loan is paid up and we are told that the loan is now in local currency or some other currency?’

“And I am told that the assurance and commitment they have actually gotten right now is starting to work out now. As I understand it now, some banks have already started giving (US dollar loans) but there are a few issues to be picked with the Reserve Bank,” he said.

He spoke as the Zimbabwe dollar continued to lose traction against the greenback, making it important for companies to access loans in foreign currency. Zimbabwe’s manufacturing companies have struggled to raise about US$2 billion in fresh capital to drive production back to pre-crisis levels, CZI data showed last year, as executives warned the government to address factors that have repelled investment.

A poll of 400 companies released by the CZI in July showed significant industrial recovery in the aftermath of a difficult 2020 when diminishing spending power and foreign currency shortages haunted firms.

However, the data, which was contained in the second quarter Business and Economic Intelligence Report, also showed that investment into industries remained elusive due to capital constraints.

It said companies injected a combined US$25 million during the first quarter (Q1).

“New investments by firms usually indicate a bullish outlook by business,” CZI said.

“For Q1, respondents undertook investments totalling over US$24,5 million into the local industry. This was driven by anticipation of a continued positive economic outlook. As such, capital was directed towards retooling and modernising production processes to become more efficient and meet expected increase in demand as the economy grows. The investments can be attributed to firms taking into cognisance the AfCFTA (African Continental Free Trade Area) and the need to increase profits,” the CZI said.

“However, investment (both domestic and foreign) remains low in the local industry which needs more than US$2 billion to retool. Key constraints to investment include challenges for foreign investors to remit dividends through formal banking channels, liquidity constraints on the local market, exchange control regulations that pose exchange risks, negative country perception, heavy taxation burden and a complex business environment.”

The US$2 billion figure first came out in a government commissioned report by the University of Zimbabwe about five years ago. This week, Zimbabwe National Chamber of Commerce chief executive officer Chris Mugaga said companies could also make use of AfCFTA opportunities to raise their own foreign currency, instead of borrowing from banks.

“Companies do not appreciate that the ACFTA is a reality,” Mugaga told businessdigest this week.

“You can see how Egypt is penetrating the Zimbabwean market. Egypt is coming hard and fast in the Zimbabwean market,” he said.

“We also need to access markets outside. That is the only way we can have bull work. In other words, we can generate forex to shield ourselves from the vagaries of exchange rate volatility so companies need to be outward looking,” he said.

The AfCFTA entered its second year in January, after launching last yea

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