eBusiness Weekly
Kudzanai Sharara
Low lending levels in the country’s banking sector are a result of players in the private sector not coming up with viable business projects befitting funding, a senior banking executive said.
According to the 2018 Monetary Policy Statement presented by Reserve Bank of Zimbabwe governor Dr John Mangudya earlier this year, banks’ lending had significantly slowed down in 2017 compared with 2016.
The loan to deposit ratio for the banking sector fell to 44 percent in 2017 from 48,9 percent in 2016. This is against the benchmark of 70 percent that is expected from banks.
Between December 2016 and December 2017, the level of bank loans dropped sharply relative to the amount of bank deposits. Because of a reluctance to lend, a lack of demand for loans, or some combination thereof, the intermediation process at banks — providing funding for investment and growth — has not been working as it should.
Banks not lending, means businesses have less access to capital. This has a negative impact on economic activity, since it means that businesses receive a constricted supply of a crucial product, namely, money — worse still when there is little foreign direct investment coming into the country.
Without the much-needed credit creation by the banking sector, the economy cannot be stimulated into the recovery mode it badly needs. A fully fledged banking sector that is able to perform its roles of credit creation, is thus critical for the economy’s recovery prospects.
However, FBC Holdings Limited chief executive John Mushayavanhu, told Business Weekly banks are ready to lend but the private sector is simply not coming up with viable projects that can be considered for funding.
Mushayavanhu, whose bank has a loan to deposit ratio of less than 50 percent after lending $393,5 million against deposits of $808,4 million for the half year ended June 30, 2018, said if the private sector is not presenting viable projects it then becomes difficult to lend.
“For someone to borrow they need to have a project and they have to do their cash flows for that project and that project must be able to generate money, but if they don’t have a viable project it then becomes difficult for us to lend them,” Mushayavanhu said.
“The first thing we need is a viable project and we are not seeing enough of those. But we have gone out of our way to also find viable project as we have done in the chrome sector. We have gone there finding small scale chrome miners who have good claims and who are mining but they lack equipment so we give them facilities for them to buy mining equipment that’s what we are doing.”
He, however, said his bank is also looking forward to those with viable projects to bring them through.
Asked on whether the failure to present viable projects was an indication on the level of entrepreneurship in the country, Mushayavanhu said it is mostly to do with lack of confidence and low risk appetite given the operating environment.
“People don’t have the confidence to start a project and see it through, because they are looking at the environment and saying where are we heading. I think once this becomes clear we will see a lot more projects coming through.”
While some analysts have said the low level of borrowing is a result of banks simply not having real money (US dollars) but huge RTGS balances that are not backed by real cash, Mushayavanhu said if the projects are viable, banks are in a position to structure foreign currency backed facilities.
“If it’s about raw materials and maybe they are into exports, we have lines of credit that have not been drawn,” he said.
