eBusiness Weekly
Tawanda Musarurwa
Zimbabwean banks could restructure short term loans amounting to as much as $4 billion into medium-to-long term debt to provide relief to businesses—choked by pricey short term credit–across the productive sectors of the economy.
This will, however, depends on the country’s eligibility to secure concessional lines of credit from the multi-lateral lenders such as the African Development Bank.
The Zimbabwean government had since 1999 been unable to borrow from the international capital markets after it defaulted on its external debt. While the country in 2016 cleared its arrears to the International Monetary Fund (IMF), it is still in arrears of $1,8 billion to the World Bank and the African Development Bank.
Bankers Association of Zimbabwe president Webster Rusere, said a closer relationship with the AfDB, should offer Zimbabwe opportunities to access medium and long term funding, which will allow local banks to restructure some of their facilities, predominantly short term in nature to medium and long term financing for customers.
This comes as industry has identified the current lack of long-term financing as its major constraint.
“Out of the $6, 5 billion loans that we have, there is need to restructure those loans to suit the requirements for our customers,” said Rusere.
“With all the efforts that Government is doing and with support from financiers such as the African Development Bank, we should be able to re-align and be able to convert some of the $6, 5 billion to fully flexible facilities, which will then allow our customers, industrialists, farmers and mines to re-organise their businesses and start generating cash flows in a sustainable manner,” he said.
“Restructuring 70 percent of the $6,5 billion that we have in loans, which would be about $4, 2 billion, to medium to long-term loans would give relief to our farmers, to our miners and to some of our manufacturing entities that have imported equipment but are now being choked because we are asking them to pay on a short-term basis.”
Bad short-term money
Short-term loans should typically be repaid within one year, hence industries cannot rely on them as regular means of lines of credit.
Financial experts say one of the downside effects of short-term loans are higher interest rates. And local companies have been struggling to repay the high interest loan, which resulted in non-performing loans (NPLs) in the financial services sector reaching risky levels of around 20 percent.
Rusere said the unavailability of local medium-to-long term financing was a result of the transitory nature of a large proportion of banking sector credit.
“Of the $6,5 billion that we are currently lending, it’s actually supported by short-term money and therefore it is difficult for the bank, or any financial institution to actually extend for longer periods than the support that it getting from the deposits,” said Rusere.
Reserve Bank of Zimbabwe figures show that total banking sector deposits increased by 30,3 percent year-on-year from $6, 51 billion in 2016 to $8, 48 billion last year.
And of that total, demand deposits continued to dominate total deposits as they increased significantly from 54, 6 percent of total deposits to 80, 3 percent of total deposits
Confederation of Zimbabwe Industries (CZI) president Sifelani Jabangwe said financing was the sector’s main constraint.
“Currently our major constraint is that of financing, because over the 15 or so years that we underwent hyper-inflation, most companies failed to recapitalise and they did not modernise equipment. Government has put in place a number of supportive measures but these are only temporary,” he said.
De-risking threatens financial sector
Meanwhile, the BAZ president said the country was facing a critical challenge of de-risking by a number of global financiers.
De-risking is a practice whereby global financial institutions terminate or restrict business relationships with remittance companies and smaller local banks in certain regions of the world, putting them at risk of losing access to the global financial system.
“We also have a situation where the global financial markets have been de-risking Zimbabwe. However that is being addressed at the moment, but in the intervening period we need to find a solution to how we should address the de-risking period,” he said.
