Zimbabwe banks have relaxed borrowing conditions to assist farmers access United States dollar funding during this summer cropping season, it has been established.
Although banks can charge an interest rate of 18% as set by the Reserve Bank of Zimbabwe, the lenders have voluntarily reduced interest rates, specifically for farmers to 15%.
“Farming is a strict business with specific timelines and needs quick solutions hence we enabled all deserving farmers to get loans in US$. The farmers will get a maximum interest rate of 15% which will be fair and reasonable,” Bankers Association of Zimbabwe CEO Fanwell Mutogo told Business Times.
The relaxation of conditions came as there were fears the current liquidity squeeze could affect local currency borrowers as many have failed to access loans.
Last week, Mutogo said traditional US$-earning crops like tobacco and exporters will as usual get funding in hard currency but the lending window has now been extended to every farmer.
“We don’t have a choice but to work with what is available. We are happy that farmers are getting something from the financial institutions, despite the difficult situation we are in,” he said.
The central bank rattled the agriculture sector after its deliberate action to regulate the quantity of money in circulation.
This left many banks with limited resources to fund the sector.
Bankers said the tight liquidity in the market may present downside risk on credit performance as borrower capacity to carry related costs is strained and the situation could also affect credit expansion.
A banker who preferred anonymity said the US$ borrowing was expensive and could eat into farmers’ revenue.
“US$ borrowing is difficult in Zimbabwe as the 4% Intermediated Money Transfer Tax (IMTT) which is required on all domestic foreign currency remittances is prohibitive and will push up the cost of production on the part of the farmers,” a banker said.
Recently, First Capital Bank managing director, Ciaran McSharry, said the tenuous operating environment projects an outlook that does not favour balance sheet expansion for banks.
“With the Zimbabwe dollar liquidity on the market having been largely constrained, the bank has experienced a notable shift in its operating environment with foreign-denominated business becoming increasingly prominent,” McSharry said.
Banks warned that a tight monetary policy stance could accelerate dollarisation.
Market analysts say the liquidity squeeze could weigh on aggregate demand, levels of production, and asset values resulting in some operators failing to fund their businesses as well as capital needs.
The central bank and Treasury tightened monetary and fiscal policy stances to stabilise the exchange rate and arrest rampant inflation.
RBZ increased the interest rates to 200% from 80% to curtail speculative borrowing, blamed for fuelling the parallel market.