by Business Reporter
The outcomes from the country’s Central Bank, Reserve Bank of Zimbabwe RBZ investigation into lending on the banking market has shown that the Foreign Exchange Auction System launched by the bank in 2020 vis a vis lending by banks has been marred with vast irregularities.
The Central Bank alleged unscrupulous practice from the investigated entities and transactions which ranged from parrarel market trading, borrowings divergences , multi borrowing among other complexities.
According to a press statement released this week by the RBZ,“1.The majority of the entities investigated have adopted business models based on arbitrage, whereby they make significant profit margins by borrowing at concessionary terms, stocking and then selling their products in US$ or in Zw$ at inflated parallel market exchange rates, thus enabling them to easily pay off the loans from a portion of the proceeds, and start the borrowing cycle again.”
The press Statement also highlighted that, “2. Most of these entities generate significant revenues, in either ZW$ or US$ or both, which are sufficient to cater for their working capital requirements. Instead of using their own revenues, they opt to fund most of their working capital requirements from the concessionary loans.”
Furthermore, “3. Some of the entities investigated abused their access to loans by “multi-dipping” across several banks. In one example, an entity concurrently accessed ZW$6.5 billion worth of loan facilities from 12 of the 16 banks. Many other entities would have loan facilities running simultaneously at 5 or more banks.”
The investigation carried out by the Banks Financial Intelligence Unit highlighted that “4. There were instances, where the entities investigated, would access loans for their own working capital, but in reality for the benefit of third-party entities either within the same group or unrelated. There were also instances where a holding entity, with little or no operations of its own, would borrow heavily for subsidiaries, who themselves would be accessing similar cheaper loan facilities directly from the banks. Such arrangements are a form of abuse of the financial system for material benefit by taking advantage of cheaper borrowing and repaying when exchange rates have been depreciated.”
The investigation which came following an RBZ directive on suspension of lending on the banking system released last month which had several effects on the economy as currency exchange rates soured saw price’s skyrocketing resultant in the bank redressing the move.