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Concerns Over Local Banks Capacity To Lend Productive Sectors

The local banking sector’s capacity to lend foreign currency to productive sectors for importation of essential inputs and machinery in the context of limited nostro account balances has come under scrutiny, amid growing fears that this could further weaken output, 263ChatBusiness has established.

Zimbabwe is failing to procure essential commodities such as wheat, rice and fuel owing to erratic liquidity of nostro balances in most banks, Central Bank included, giving rise to intermittent supply of commodities on the market.

Analysts are skeptical of local banks capacity to then lend companies in dire need of retooling towards production.

Statistics attest to this. Reserve Bank of Zimbabwe (RBZ)’s December 2018 report shows that productive sectors only received small allocation of total credit from local banks last year.

It highlights that mining for instance, got 4.46 percent, construction (3.0 percent) and agriculture (26.33 percent) against 26.33 percent channelled towards households.

This has been attributed to local banks incapacitation to meet the requirements of most productive sectors that require much of its borrowing in foreign currency.

First Capital Bank, managing director Sam Matsekete, while accentuating the point that private sector require credit in both the RTGS and US Dollar currencies, however alluded to the need for innovative sources of credit given the current context.

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“When you look at the funding that private sector requires and what is available, we have always said we have some mismatch. So in an ideal world we shouldn’t be talking about just loans, we should be talking about how much equity is going into the private sector because normally you start businesses on equity then you start talking about borrowing,”

“So we must appreciate that at this stage we are in an environment where we are looking to answer all financing questions from borrowings which we hope to correct as well and perhaps that is the biggest homework on the part of authorities to say, how do we get to a situation where we can start by all diversifying sources of finance which are also better matched to the nature of the projects and nature of businesses,” said Matsekete.

Most companies resorted to strengthening their non-monetary asset bases in the wake of inflationary headwinds that characterized fourth quarter 2018 as the possibility of devaluation of RTGS profits was all written on the wall.

Most local banks nostro balances are in a precarious position yet production remains at critical levels unable to improve foreign currency generation into the market.

Local banks have been castigated for preferring lending to the government at the expense of productive sectors.

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Last year First Capital Bank, made revenue of RTGS $ 24.3 million buoyed by purchase of Treasury Bills which has short-term government guarantee.

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