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Business Writer
Government’s coronavirus stimulus package relies heavily on banks playing ball if efforts to combat the crippling economic effects of the Covid-19 pandemic and the subsequent lockdown are to be successful, Business Weekly has observed.
An amount of $18 billion has been bandied about as the total value of Zimbabwe’s economic stimulus package, but part of that figure relies on banks providing affordable facilities to their customers.
Relaxation of some credit granting rules will also have to be considered.
The RBZ has also gone on an all-out drive to get more credit into the system by cutting interest rates to between 10 and 15 percent from the previous 15 to 20 percent and also increasing the Medium-Term Bank Accommodation (MBA) facility by $500 million to bring it to $3 billion.
In addition, Treasury has indicted that there will be a reduction in statutory reserve requirements in order to release at least $2 billion of liquidity in order to increase the capacity of banks to lend.
In its latest financial stability report released last week, the RBZ said in order to minimise the adverse impact of vulnerabilities that might arise in households, corporations, and the financial sector due to the shutdown, various policy measures have been promulgated by central banks, supervisors and fiscal authorities.
“The measures include monetary policy easing and relaxation of some supervisory rules to enable banks to avail requisite liquidity and also to absorb emerging non performing loans, and cash stimulus to individuals, concessionary loans to SMEs and tax incentives to corporations.”
The regulatory concessions will, hopefully, lead to an infusion of the much needed credit, to provide further impetus to the resuscitation of production in the economy.
Dovetailing with the RBZ’s regulatory concessions are loan guarantee schemes for industry and the tourism sector worth $3 billion that banks can use to give out special Covid-19 loans.
Treasury set up a working capital fund for industry and is providing Government guarantees of up to $2,5 billion for bank loans accessed by industry for working capital purposes.
For the tourism sector, a total $500 million in Government guarantees has been put in place for sector players to access working capital loans from banks.
Together with the $2 billion expected to be released from statutory reserves, banks are expected to extend loans that are equivalent to 40 percent of what they loaned out last year.
Inflation aside, this is a lot of credit even before you include funds that are going to be injected as equity into the Women’s Bank and the Empowerment Bank.
The only problem ,however, is that it seems there is no binding agreement between authorities and banks.
On low interest rates, the RBZ is only “encouraging” banks that access the MBA Facility to on-lend at interest rates not exceeding 20 percent.
They are not being asked to toe the line.
What has also not been clarified is the criteria banks are going to use to avail the loans.
Are they going to rely on their usual credit risk management practices, and how many troubled firms would qualify if they do that.
In 2019, the loan to deposit ratio for banks was just 36,6 percent, and according to the RBZ, this was largely as a result of cautious lending approach adopted by some banking institutions.
While operational details of the Government guarantee facility are still to be finalised, there is no guarantee they will be a significant deviation from the normal credit granting criteria.
In reality, while the RBZ and Government’s interventions have significantly increased funds available for lending, it is up to each bank to balance the new headroom to lend.
What also has to be considered is that while Treasury and the central bank have increased funds available for lending, banks themselves were already going to face a tidal wave of Covid-19-related defaults.
Everything from mortgages to small business loans could rapidly transform into toxic assets and Government will almost certainly have to intervene in yet another round of stimulus/bailout somewhere down the road.
It is however encouraging that non-performing loans (NPLs) are currently very low judging by the 2019 levels.
According to the RBZ, the quality of the banking sector loan portfolio in 2019 was much improved, as reflected by the decline in the NPLs to total loans, from 3,95 percent as at 30 June 2019 to 1,75 percent as at 31 December 2019.
In its financial stability report to June 2019, the central bank said its credit risk stress tests for local banks provided evidence of resilience of the banking sector.
This resilience will now be put to the test.
Bongani Ndlovu