eBusiness Weekly
Nelson Gahadza
International credit lines extended to local banking institutions have been driving the increase in foreign currency loans and advances which accounted for 78,2 percent of the total $1,29 trillion advanced in the six months to December 2022.
The recent Monetary Policy Statement (MPS) by the central bank, showed a sharp increase in foreign currency account balances in the banking system.
“An increase in foreign currency denominated loans led to the increase in their proportion from 65,87 percent as at June 2022 to 78,20 percent of total banking sector loans as at December 2022,” said RBZ governor Dr John Mangudya.
He noted that foreign currency loans to deposit ratio was 41,40 percent as at the same reporting date.
Economists believe it is a sign that the economy is growing as companies are able to access loans for retooling and increasing production.
Financial services firm, NMB Bank, has over the years run several credit facilities with international financiers earmarked for productive sectors of the economy.
Last year, the bank received a US$10 million line of credit from the Eastern and Southern Trade and Development Bank (TDB) to fund exporters.
NMB in June last year also received EUR 12,5 million credit facility from the European Investment Bank (EIB) that was earmarked for private sector lending. The similar amount was also extended to First Capital Bank and was earmarked for the same purposes.
Central African Building Society (CABS) last year secured a US$7,5 million trade guarantee facility from the African Development Bank Group (AFDB).
The three-year tenor facility provides guarantees of up to 100 percent to international confirming banks against the non-payment risk arising from the confirmation of letter of credit and similar trade finance instruments originated by CABS on behalf of its clients.
African Century Limited (ACL) has been engaged on various fund raising initiatives, serving the needs of corporates, SMEs and individuals.
The bank has been engaging foreign lenders to establish credit lines to support the retooling of industry following the negative impact caused by the Covid-19 pandemic.
Confederation of Zimbabwe Industries (CZI), Kurai Matsheza recently said companies are getting foreign currency loans in order to recapitalise, and the banks have been availing the money.
“We are seeing an increase in the number of our members that are getting USD based loans in order to restock and recapitalise. This is a good development as it reduces the risk of losing value through conversions,” he said.
The agricultural sector has been the biggest beneficiary of the loans and advances, accounting for over 28 percent of the loans, followed by distribution, manufacturing, commerce, mining, housing mortgages, transport, and construction.
Economist, Vince Musewe, said companies need a stable currency and access to credit, supported by low inflation to increase production.
“Clearly one wants credit in a currency that provides confidence and retains its value over time. The increasing number of foreign currency credit lines will see the productive sectors enhancing their capacity which is good for the economy,” he said.
In the period under review, the loans to the productive sectors constituted 78,45 percent of total loans up from 71,12 percent as at June 30, 2022.
According to RBZ, the banking sector’s average non-performing loans (NPLs) ratio has remained stable at low levels.
As at December 31, 2022, the average NPLs to total loans for the banking sector was 1,58 percent.
