Online Reporter
Business Reporter
OVER 80 percent of bank lending since the beginning of the year went to key productive sectors of the economy, as businesses stepped up investment in agriculture, manufacturing, mining and construction.
The trend highlights growing demand for financing to expand production, purchase equipment and increase capacity across key areas of the economy.
Official data obtained from the Reserve Bank of Zimbabwe shows that banks advanced ZiG80 billion to industry and commerce during the first six months of the year.
Foreign currency loans accounted for about 90 percent of the credit extended by banks, underscoring the continued dominance of foreign currency financing by businesses involved in key productive sectors.
The increase in productive sector lending comes against the backdrop of monetary policy easing by the Reserve Bank of Zimbabwe, which recently reduced the bank policy rate from 35 percent to 30 percent.
The reduction is expected to ease borrowing costs, encourage investment and support economic activity as inflation remains in single digits.
The growing flow of credit into productive sectors could provide businesses with much-needed capital to expand capacity, acquire machinery and raise production.
At the same time, the high proportion of foreign currency lending reflects the structure of Zimbabwe’s economy, where businesses continue to rely heavily on foreign currency to finance operations, investment and trade.
Sustaining the trend will, however, depend on continued macroeconomic stability and the ability of businesses to convert increased access to credit into higher production and stronger cash flows.
Economist Dr Prince Tashaya said the shift towards productive sector lending was positive for economic growth because it provided businesses with capital to expand operations and raise output.
“Credit is the lifeblood of production. When businesses can access financing, they can invest in machinery, raw materials and technology, which ultimately increases their productive capacity,” he said.
Dr Tashaya said sustained lending to agriculture, mining and manufacturing could have wider economic benefits through increased output, exports and employment.
“Once that investment begins to translate into higher production, the benefits go beyond the individual company. We see stronger exports, more employment and greater economic activity,” he said.
Another economist, Mr Michael Mhene, said banks were naturally inclined to lend to productive businesses because such enterprises have clearer revenue streams from which loans can be serviced.
“Banks are looking for sectors where there is an identifiable cash flow and a reasonable capacity to repay. Productive sectors offer that opportunity because they generate goods, services and, in many cases, export earnings,” he said.
Mr Mhene said improving macroeconomic stability was also giving financial institutions greater confidence to increase lending to businesses.
“The more predictable the operating environment becomes, the easier it is for banks to assess risk and commit funds to businesses with viable projects,” he said.
Harare-based economist Mr Kudzai Gambiza said banks were increasingly favouring productive sectors because businesses in these areas generally had stronger prospects of generating income and servicing loans.
“Banks are primarily concerned with the ability of borrowers to repay. Productive sectors have identifiable revenue streams, particularly where companies are producing for the domestic market or exports,” he said.
According to Mr Gambiza, the improving macroeconomic conditions were also creating greater confidence within the financial sector to support viable businesses.
“As economic conditions become more predictable, banks are better able to assess risk and identify businesses that can support sustainable economic development,” he said.
