Zimbabwe is now desperately trying to contain further economic fallout from the new monetary measures announced a week ago.
- The Reserve Bank of Zimbabwe has backtracked on its general directive to stop banks’ lending activities
- Zimbabwe is now desperately trying to contain further economic fallout from the new monetary measure.
- Bankers and company executives warned that the move would impact manufacturers’ operations and profitability across the economy.
The Reserve Bank of Zimbabwe backtracked on its blanket directive to stop banks’ lending activities after Zimbabwean units of Tongaat Hulett and other companies stopped selling credits and advances to suppliers.
The move to stop lending by banks has sent Zimbabwe’s economy into a tailspin. Companies listed on the Zimbabwe Stock Exchange such as Dairiboard Holdings suspended payment of recently declared dividends while agricultural processors wrote to suppliers that they were suspending prepayments.
Zimbabwe is now desperately trying to contain further economic fallout from the new monetary measures announced a week ago. Bankers and company executives warned that the move would impact manufacturers’ operations and profitability across the economy.
The Reserve Bank of Zimbabwe (RBZ) said Thursday night that the lending suspension did not apply to tradable commodities. This is in contrast to his communication earlier this week directing the suspension.
“The suspension of lending facilities does not apply to marketable commodities such as tobacco, cotton, sugar, corn, etc. All banks have been informed accordingly,” the RBZ said in its statement.
The backtracking followed a series of business letters to suppliers suspending prepayments and credit advances as the impact of Zimbabwe’s new monetary measures aimed at containing the exchange rate implosion and rising inflation, it spread throughout the economy.
James Bowmaker, chief operating officer of Tongaat Hulett’s Zimbabwe business, said: “We normally finance advances from loan proceeds we access from banks. Following the recent lending suspension by banks, we are unable to continue to offer advances “.
In his letter to sugar cane growers, Bowmaker added that because of this, it is regrettable that the millers working with the company have been warned “of the immediate suspension of advance payments” until further notice.
Other farms such as Fivet, a supplier of health products and raw materials for livestock, had also suspended advance sales. Surrey, another agricultural processor, had even asked farmers to stop supplying livestock to its slaughterhouses.
Hotelier Cresta Hospitality also announced a “credit policy change” stating that it “is no longer able to offer credit terms for all Zimbabwean dollar business transactions” effective immediately.
“This was necessitated by the operating environment where we are unable to access lines of credit and credit terms from financial institutions and suppliers to allow us to extend credit to our customers,” said Mxolisi Ndlovu, financial controller of the group for Cresta Hotels.
Shareholders of ZSE listed companies were also affected by the suspension of loans by banks. This came as companies are now trying to preserve liquidity in light of an expected credit crunch on local banks in anticipation of a lengthy bank lending ban.
Zimbabwean banks are in the regulatory spotlight as authorities suspect they are using their holdings to buy foreign currency from the parallel market, thereby inflaming the exchange rate. The International Monetary Fund has urged the Zimbabwean authorities to work towards convergence of the exchange rate regime as current mismatches have intensified arbitrage opportunities.
The Financial Intelligence Unit has asked banks to forward it to all suspense and other internal accounts for audit by the end of today to “facilitate” an audit process. This is based on the suspicion that “some banks may use suspense and other internal accounts to purchase foreign currency” on the parallel market.