RBZ in dramatic U-turn on lending

THE central bank yesterday lifted its temporary suspension of lending services by banks after the policy triggered sustained protests from industry, commerce and the public in general.

In a statement yesterday, the Reserve Bank of Zimbabwe (RBZ) reversed its earlier decision, barely eight days after it barred banks from lending on May 9.

"The Bank wishes to advise the public that the temporary suspension of lending services by banks has been lifted with immediate effect. However, the lifting of the suspension does not apply to those entities that are under investigation by the Financial Intelligence Unit for abusing loan facilities to the detriment of the economy," read the RBZ statement.

Its monetary measures announced last week were meant to contain exchange rate implosion and the rising inflation in the country.

Economic analysts had warned that the ban on lending would cripple operations of major manufacturers in the country.

As a result of the measures, Dairibord, Zimbabwe's largest dairy products processor had to suspend a planned dividend payout worth $187 million for the year 2021 to preserve the firm's liquidity.

Dairibord chief executive Anthony Mandiwanza told NewsDay that working capital had become crucial, adding that it did not make sense to pay a dividend at the expense of working capital requirements for the business.

Sugar producer Tongaat Hulett announced suspension of advanced payments to millers working with the company following suspension of lending by banks.

This resulted in the price for a 2kg packet of sugar from US$1,90 to US$3,25, triggering panic buying by citizens. Sugar is currently scarce in the country.

Fivet, a livestock health and feedstock supplier, suspended sales, while Surrey, another agriculture processing company, asked farmers to stop supplying livestock to its abattoirs.

On May 12, the RBZ announced that suspension of lending would not apply to marketable commodities such as tobacco, cotton, sugar, maize and others.

Hotelier Cresta Hospitality reacted by announcing that it was, with immediate effect "no longer in a position to offer credit terms for all Zimbabwe dollar business transactions".

Zimbabwe Stock Exchange-listed companies were also affected as they sought to preserve cash in anticipation of an expected credit crunch.

Former Finance minister Tendai Biti tweeted: "The ban on bank lending should never have been imposed. It was a blatantly unlawful, irrational and unsound decision. A country can't be run on the basis of kick and hope strategies. Irreparable harm was caused and surely heads must roll."

Economic analyst Titus Mukovi said:  "The economy is under stress and the authorities erred in suspending lending. There were signs that there was going to be reversals as the government was on record saying the suspension does not apply to marketable commodities. Of course, no economy can grow without lending. Banks make money through lending and they are going to channel extra costs to consumers and this is not sustainable in the
long run."

He said such recklessness and inconsistencies in policies would affect confidence in the local currency.

Zimbabwe National Chamber of Commerce secretary and economist Christopher Mugaga, however, said: "The damage was not much and it is good that the government listened and reversed the suspension of lending by banks early. The government showed that it is on our side as it has listened to us and we encourage wide consultation in future before the implementation of any policies to avoid any damage to the economy."