RBZ to give banks comfort to lend idle US$1,7bn

Capitalk Reporter |  11 months ago | local

RESERVE Bank of Zimbabwe (RBZ) governor Dr John Mangudya, says the central bank is crafting measures to give banks comfort to lend to key productive sectors the US$1,7 billion lying idle in foreign currency accounts (FCAs)

Banking institutions have been unwilling to extend the foreign-denominated deposits, representing nearly half the total deposits they hold, over concerns about local firms’ ability to repay loans in hard currency.

As a result, the banks have largely been extending US dollar loans to a few export-oriented entities, the very same entities generating the funds, at the exclusion of the rest of businesses in the country. Secretary for Finance and Economic Development George Guvamatanga, said last week banks’ reluctance to lend the US$1,7 billion FCA deposits to other key productive sectors reflected an incomplete market, which resulted in increased demand for forex from the auction system.

The auction system is credited with fostering the prevailing economic stability, which saw inflation dropping to two-digit levels for the first time since 2019, after declining to 56,37 in July from 106,6 percent in June 2021

. The annual rate of inflation, amid expected prolonged exchange rate stability anchored on the auction, is forecast to close the year around 22-35 percent, kept within check by further monetary and fiscal discipline.

Mr Guvamatanga said if banks could lend just US$300 million from their FCAs that could result in a significant fall in demand for forex on the auction, where excessive demand saw delays that at times ran into weeks on payments for approved bids. However, Mr Guvamatanga revealed during a panel discussions on the 2021 budget review organised by Business Weekly and ZTN, together with Confederation of Zimbabwe Industries, last week that RBZ and Treasury were working to clear the forex backlog in 30-45 days.

Dr Mangudya said in an interview post his mid-term monetary policy last week, that the auction system had disbursed US$1,7 billion since its inception 12 months ago, roughly the same amount lying idle within banks.

In order to complement the auction, Dr Mangudya said the bank was working on measures to support banks to promote financial intermediation so as to leverage on the current exchange position of around US$1,7 billion in the banking system.

Further, Dr. Mangudya said the bank would put in place more measures to ensure utilisation of letters of credit for important commodities and capital goods to lessen the demand for forex from the auction system.

Dr Mangudya said the auction has extended US$1,5 billion to 1 632 large corporates and US$172,8 million to small and medium enterprises with bulk, 70 percent, allotted towards procurement of raw materials, machinery and equipment. “The foreign exchange auction system continues to support the productive sectors of the economy and remains a key factor in sustaining the current economic growth trajectory,” Dr Mangudya said.