eBusiness Weekly
Tawanda Musarurwa
Local banks’ short – term lending model is having negative impact on the country’s agriculture development as players struggle to secure sustainable funding, Agribank chief executive Sam Malaba has said.
Most financial institutions in Zimbabwe have cited the short-term nature (transitory) of local deposits for their incapacity to structure longer term financing for borrowers.
Said Malaba: “One of the biggest challenges facing the agriculture and agribusiness sector is the availability of medium-to-long term funding.
“A lot of the funding that the banks have is short-term funding because 70 percent of our deposits are demand deposits, so when we try and talk of competitiveness, other countries have access to medium-to-long term funding,” said the Agribank boss.
“And the challenge that we have is that we as a country are heavily indebted, particularly to the multilateral institutions so basically until we are able to re-engage and clear our debts to the African Development Bank and the World Bank, and we also go to the Paris Club to renegotiate with the donor community, we will find it difficult to access medium-to-long term funding.
“When you look at regional lines of credit, they are very few and subject to high risk premium.”
However, Bankers Association of Zimbabwe (BAZ) president Webster Rusere is on record saying that to the extent that the local financial services sector can get support from regional and global financiers, it is looking to restructuring at least 70 percent of the $6, 5 billion it has in loans into long-term financing.
Financial experts say one of the downside effects of short-term loans are higher interest rates.
And local companies have been struggling to repay the high interest loan, which resulted in non-performing loans (NPLs) in the financial services sector reaching risky levels of around 20 percent.
Last year, the Reserve Bank of Zimbabwe said the country’s financial services sector could actually benefit from a reduction in the level of market interest rates as borrowers shy away from expensive loans.
This was after the apex bank had concluded comprehensive financial stability stress tests on the banking sector in September 2018 to assess the impact and resilience of their portfolios.
