Banning lending will endanger banks’ viability, BancABC warns Mnangagwa

BancABC, the local subsidiary of British Virgin Islands-based regional financial services group Atlas Mara, accused President Emmerson Mnangagwa’s administration of “injecting huge liquidity as and when it makes payments to local contractors” causing current financial problems bedeviling the country.

Mnangagwa last Saturday announced a raft of measures including suspending banks from lending local currency or foreign currency, to government and the private sector, including corporates, other legal entities and individuals in an effort to arrest the skyrocketing inflation in Zimbabwe.

According to a paper circulating in the public domain which sources attributed to the bank’s internal executives, BancABC argued that Mnangagwa missed it when he accused only banks for the growth in local currency which in turn is blamed for fuelling the parallel market.

The bank has, however, distanced itself from the paper but sources within the company attributed it to the bank’s internal executives.

“Growth in local currency which in turn is blamed for fuelling the parallel market cannot be attributable to bank lending alone, as government is well known for injecting huge liquidity as and when it makes payments to local contractors,” read the paper.

“The move to suspend bank lending is unprecedented as it goes against the norm of economic recovery, and contrary to the rationale of supporting economic recovery.

“The government is adopting non-conventional practice in an attempt to avoid dealing with currency reforms.

“The government is using a blunt approach to try and address a long-standing issue of the currency conundrum.

“Bank lending is the core function of banks’ financial intermediation process. Banning lending activities will threaten the survival of banks as this will wipe out 20-50 percent of their incomes.

“Consequently, this could push banks to embark on risky and/or non-permissible activities to compensate for the loss of incomes. This could also push bank charges upwards as banks devise survival strategies.”

The bank further noted: “On the other side, the companies cannot survive without working capital facilities. This will lead to scaling down of operations, shortages of goods, further price increases, viability challenges and possible company closures and job losses.”

In a statement, Zimbabwe Banks and Allied Workers’ Union (Zibawu) warned Mnangagwa that: “Taking away part of the main function of the banking sector is surely a way of destroying the whole sector. Secondly, stopping lending will seriously affect the productive sector.

“Thirdly, our experience of the demand for loans indicates that some clients are applying for loans for medical care. Banning loans is sentencing many to death.”