RBZ to name firms taking bank loans to black market

THE Reserve Bank of Zimbabwe (RBZ) has unearthed an elaborate practice by some big corporates in the country, who were borrowing large amounts of money from banks which they would then channel into the black market to buy foreign currency and manipulate exchange rates.

The companies would then buy foreign currency, sell a portion of that forex on the black market (also known as burning), and quickly repay the loans- some with a tenure of two years- in two months before going back to get more loans that were now used to manipulate the exchange rate and pricing of goods and services.

The companies will soon be named and prosecuted for commercial financial crimes, the Central Bank Governor, Dr John Mangudya told Sunday News yesterday.

A thorough investigation by the Central Bank that unearthed this malpractice prompted President Mnangagwa to announce a raft of policy changes last Saturday meant to address the country's economic challenges in the wake of a souring exchange rate, inclusive of the banning of lending by banks.

The country has seen a sharp increase in foreign currency parallel market rates and a huge increase in prices of goods and services because of the sabotage from the companies.

Dr Mangudya said RBZ has identified the companies and also how they were involved in "burning" of the loans, resulting in skyrocketing rates on the markets.

"Entities were borrowing substantial amounts of money from banks, they would then use that money for the purposes of manipulating the exchange rate.

They would take the funds today, when there is a certain rate, after a month or two, they then repay the loan in full, knowing that it will have lost its value compared to when they took the loan.

They were servicing the loans through depreciation of currency, in other words these entities were ‘burning'. They were leveraging on high borrowing for financial gain through manipulating the exchange rate, thereby depreciating the value of their loans," said Dr Mangudya.

He said it was unfortunate that those entities had been used to this cycle such that they mistook themselves to be above the law, as they felt that as long as they were repaying their loans well before their due dates the long arm of the law would not catch up with them.

"It is unfortunate that while these entities were manipulating the parallel market, it means it wasn't affecting them but the people who were bearing the brunt of this illicit activity were the consumers because they end up paying for goods which are priced at prices indexed on the parallel market, where the entities now increase the rate of exchange willy-nilly.

This is the reason we thus decided to come up with those stringent measures as we felt that enough is enough and there is a need to weed out these corrupt elements.

We have identified them and we will soon be naming them for prosecution," said Dr Mangudya.

Questioned on the charges that will be laid against those entities, the RBZ governor said they were laid down regulations guiding the financial sector which they would use to bring the entities to book.

"We call these commercial financial crimes and therefore our laws in the country are clear on the regulations and how we are meant to deal with financial crimes of that nature, hence these are the charges that will be laid against them.

Once we finish our investigations we will then be in a position to lift the suspension of the ban in lending by banks. Our first step, which we are in now, has been the identification of the problem, then we investigate after that, the entities or the individuals will be brought to book, we want to do everything above board so that we solve this ill-practice that is affecting our country's economy," said Dr Mangudya.

In his address, President Mnangagwa said the security agents and the Financial Intelligence Unit shall, with immediate effect, enhance their roles to effectively monitor financial transactions to address the delinquent arbitrage behaviour in the economy.

This was further buttressed by the Central Bank, which said it will monitor compliance and take appropriate supervisory action against non-compliant institutions.