Zimbabwe suspends banks from lending money to private companies, government agencies
On Saturday, the President of Zimbabwe, Emmerson Mnangagwa, issued an executive order that banks should stop extending loans following the rapid devaluation of the Zimbabwean dollar on the black market.
The President enforced the drastic measure in an attempt to arrest the currency’s depreciation and stop “economic hitmen” who he blamed for derailing the country’s economic stability.
According to Reuters, the move comes after unnamed speculators were accused of borrowing Zimbabwe dollars at below-inflation interest rates and using the money to trade in forex. Other measures include an increased tax on forex bank transfers, higher levies on forex cash withdrawals above $1,000, and the payment of taxes which used to be charged in forex in local currency.
This has led to the deterioration of the parallel market exchange rates to reach a high of US$1: 400 Zimbabwean dollars, driving up inflation to 96.4% in April, from 60.6% in January.
“To minimise the creation of broad money that is prone to abuse for purposes of manipulating the exchange rate for financial gains, and to allow current investigations, lending by banks to both the government and the private sector is hereby suspended with immediate effect until further notice,” President Mnangagwa said.
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He added, “Third-party funding of client sub-accounts is no longer permitted, transfer out of a client sub-account shall only be permitted to the customer’s bank account, not a third-party, and the ZSE will have powers to undertake regular and continuous monitoring of broker transactions, share trading and custodial changes.”
Economic experts in the country have questioned the move by the President, with many arguing that the move threatens the survival of the country’s banks.
According to analysts from BancABC, the local unit of pan-African financial group Atlas Mara, “The government is using a blunt approach to try and address a long-standing currency conundrum,” the analysts said, adding: “Banning lending activities will threaten the survival of Banks as this will wipe out 20-50% of their incomes.”
Zimbabwe’s central bank governor John Mangudya, however, says the bank lending freeze is temporary and that the move is a temporary measure which is meant to contain inflation and stabilise its economy,
“We know this is a painful but necessary measure, and it was necessary because of the increase in inflation. Some entities were now using funds from banks to purchase foreign currency,” Mangudya told ZBC.
“It’s a temporary, necessary measure to ensure that there is sanity in terms of taming inflation.”
