BUSINESS REPORTER
The Reserve Bank of Zimbabwe (RBZ) will refer banks that engage in illicit parallel market activities for prosecution as it stamps its authority to shore up the local currency.
The Zimbabwe dollar has taken a battering against the greenback on the parallel trading at 1:700 versus 338.4921 on the forex auction.
Last month, President Emmerson Mnangagwa ordered banks to suspend lending to the government and corporates pending the outcome of investigation amid revelations lenders were conduit for illicit parallel market activities. The suspension was lifted a week later.
RBZ governor John Mangudya said Friday that an investigation by the Financial Intelligence Unit (FIU) on possible abuse of loan facilities by 15 entities showed that there was “multi-dipping” across several banks in which an entity concurrently accessed ZWL$6.5bn worth of loan facilities from 12 of the 16 banks. Others had 5 concurrent loan facilities.
“Whilst the suspension of lending to the investigated entities has been lifted with
effect from 17 June 2022, any entity found to have actively engaged in exchange rate manipulation in order to derive illicit gains from loans shall also be referred for prosecution,” Mangudya said.
He decreed that no bank shall extend a loan to an entity or individual at an interest rate below the prevailing bank policy rate.
The central bank chief said banks must comply with prescribed prudential lending limits provided under the Banking Regulations SI 205 of 2000, which prescribed that the aggregate of loans and advances outstanding at any time or any single obligor shall not exceed 25% of a banking institution’s capital base.
They should also comply to the requirement that the aggregate of loans and advances outstanding at any time to any corporate group shall not exceed 75% of a banking institution’s capital.
Mangudya said a probe by the FIU showed that the majority of the entities investigated have adopted business models based on arbitrage, whereby they make significant profit margins by borrowing at concessionary terms, stocking and then selling their products in US$ or in ZW$ at inflated parallel market exchange rates.
This enabled them to easily pay off the loans from a portion of the proceeds, and start the borrowing cycle again.
He said the bulk of the entities investigated generate significant revenues, in either ZWL$ or US$ or both, which are sufficient to cater for their working capital requirements.
“Instead of using own revenues, they opt to fund most of their working capital requirements from the concessionary loans,” Mangudya.
He said there were instances where the entities investigated would access loans, ostensibly for their own working capital, but in reality for the benefit of third party entities either within the same group or unrelated.
“There were also instances where a holding entity, with little or no operations of its own would borrow heavily for subsidiaries, who themselves would be accessing similar cheaper loan facilities directly from the banks. Such arrangements are a form of abuse of the financial system for material benefit through taking advantage of cheaper borrowing and repaying when exchange
rates have been depreciated,” Mangudya said.
