Zim backtracks on shutting down bank lending after companies shutter facilities

Zimbabwe is now desperate to contain further economic fallout from new monetary measures announced a week ago.

  • The Reserve Bank of Zimbabwe has reversed its general directive to halt bank lending activities
  • Zimbabwe is now desperate to contain the additional economic fallout from the new monetary measure.
  • Bankers and corporate executives had warned that the move would impact producers’ operations and viability across the economy.

The Reserve Bank of Zimbabwe has reversed its general directive to halt bank lending activities after Zimbabwean units of Tongaat Hulett and other companies halted credit sales and advances to suppliers.

The decision to stop bank lending has hurt Zimbabwe’s economy. Companies listed on the Zimbabwe Stock Exchange such as Dairiboard Holdings have stopped paying dividends declared recently while agribusiness companies have written to suppliers that they are suspending advance payments.

Zimbabwe is now desperate to contain further economic fallout from new monetary measures announced a week ago. Bankers and corporate executives had warned that the move would impact producers’ operations and viability across the economy.

The Reserve Bank of Zimbabwe (RBZ) said late Thursday that the loan suspension did not apply to tradable commodities. This contrasts with his communication earlier this week ordering the suspension.

“The suspension of loan facilities does not apply to tradable products such as tobacco, cotton, sugar, maize, etc. All banks have been notified accordingly,” the RBZ said in its statement.

The rollback follows a series of company letters to suppliers suspending advance payments and credit advances as the impact of Zimbabwe’s new monetary measures, aimed at containing the implosion of the exchange rate and the surge in inflation, has spread throughout the economy.

James Bowmaker, Chief Operating Officer of Tongaat Hulett’s Zimbabwe business, said: “We normally fund advances from loan proceeds that we access from banks. Following the recent suspension of lending by the banks, we are unable to continue offering advances.

In his letter to sugarcane growers, Bowmaker added that as a result it was unfortunate that millers working with the company had been advised “of the immediate suspension of advance payments” until further notice.

Other agribusinesses such as Fivet, a supplier of health products and raw materials for livestock, had also suspended advance sales. Surrey, another agricultural processing company, had even asked farmers to stop supplying cattle to its slaughterhouses.

Hotelier Cresta Hospitality has also announced a “change in credit terms”, saying it is “no longer able to offer credit terms for all business transactions in Zimbabwean dollars” with immediate effect.

“This has been necessitated by the operating environment where we are unable to access credit facilities and credit terms from financial institutions and suppliers to enable us to extend credit to our customers,” said said Mxolisi Ndlovu, group financial controller for Cresta Hotels.

Shareholders of companies listed on the ZSE have also been affected by the suspension of loans by banks. It came as businesses now seek to preserve cash in light of an expected credit crunch on local banks ahead of a long lending ban by banks.

Zimbabwe’s banks are under the spotlight as authorities suspect they are using their assets to buy foreign currency on the parallel market, thus inflaming the exchange rate. The International Monetary Fund has urged Zimbabwean authorities to work towards convergence of the exchange rate regime, as current asymmetries have deepened arbitrage opportunities.

The Financial Intelligence Unit has asked banks to forward all pending accounts and other internal accounts to it for audit by the end of the day to “facilitate” an audit process. This is based on the suspicion that “some banks may use suspense accounts and other internal accounts to purchase foreign currency” on the parallel market.

Richard F. Gandhi