Banks’ lending rises, but industry still thirsty

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Tawanda Musarurwa
Bank loans are estimated to have increased to $3,8 billion last year from $3,69 billion, as the sector crept towards its highest level in loan book size post-dollarisation.
The record of $4,01 billion was set in 2014.
But is the economy really benefiting?
An analysis of the numbers say: “Not so much.”

Figures from the Reserve Bank of Zimbabwe (RBZ) show that individuals accounted for the majority of bank financing as lending to the private sector was at 23 percent.

The economy’s linchpin agriculture sector staked 17 percent of bank financing, while trade and services took up 15 percent, and the property sector accounted for 10 percent.
Manufacturing took up 9 percent, while the energy and mining sectors accounted for a combined 4 percent, reflecting the fact that the increase in credit in FY2017 did not translate to adequate levels of funding for local industry.

“This continuous drop in the contribution to the manufacturing sector shows how highly constrained the sector has been and the reluctance of most banks to lend to the sector, despite Government efforts,” said analysts at IH Securities.

The “flawed” distribution of bank financing has continued into 2018, with RBZ figures showing that in March households (again) absorbed 23,99 percent of the total domestic credit, followed by agriculture (18, 16 percent); services (13,62 percent); distribution (12,91 percent); manufacturing (11,38 percent); financial organisations and investments (10,84 percent); mining (4,29 percent); construction (2,43 percent); transport and communications (1,64 percent).

The situation has been worsened by the fact that the limited funds flowing into the private sector are largely being used for inventory and recurrent expenditure as opposed to capital investment.

“Credit to the private sector was mainly utilised for inventory build-up, 27,56 percent; consumer durables, 17,91 percent; fixed capital investment, 12,86 percent; and pre and post shipment financing, 1,11 percent. Other recurrent expenditures accounted for 40,56 percent of the total outstanding loans and advances, during the month under review,” highlighted the RBZ for the March 2018 figures.

The Government’s push for private sector-led growth is being constrained by the limited credit flow.

Flexibility needed
Zimbabwe’ economy has transformed over the years, with small businesses becoming a key player. But the local financial services sector’s proclivity not to lend to smaller enterprises has been acting to constrain money supply into one of the most critical sectors of the economy.

Banks need to appreciate one thing: the dynamics of the Zimbabwean economy have changed over the last couple of decades.
To this extent, it is unescapable that they significantly relax their lending policies as a means to boost small businesses’ access to loans, which will result in an improvement in their (the small companies) and the broader economy’s competitiveness.
Current lending policies discriminate against new and small businesses and this cannot be in the interest of the economy.

Important sectors such as manufacturing, agriculture and even mining have over the years seen a proliferation of new indigenous players coming in, however, these have struggled to access working capital as a result of their size.
Although the issue of collateral (or rather the lack of it) has been raised as a key problem in the whole financing matrix, some observers deny this claim.
“What I know is that most (if not all banks) take collateral, which is valued by independent valuers (typically estate agents). Banks also include a haircut on all collateral used to secure loans.

“The immovable property market typically has three values — replacement, fair value and fair sale value,” said one analyst.

Government Export Thrust
In view of the fact that the Government’s key policy thrust is export-oriented, it is essential that local banks deliver appropriate financing packages for the industry if the sector is to become comparatively competitive as businesses in the region and globally typically obtain loans in their respective countries at next to no interest if at all.

The prevalent shortage of money has been driving up the cost of doing business in the country, which in turn has had the twin effects of repelling potential foreign direct investment as well as constraining the establishment of an effective money market from which the Government could borrow to finance the budget deficit.
Hence, the buck should also fall on both the monetary and fiscal authorities.

And the apex bank seems to be fully aware of this fact, because last year it announced that it had started to convert the high levels of real-time gross settlement (RTGS) balances to cheap finance to fund critical sectors of the economy.
But outside the efforts that the central bank has been doing, the financial institutions themselves need to become innovative and address this far-reaching need for effective finance.

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