The Sunday News
Judith Phiri, Business Reporter
THE Reserve Bank of Zimbabwe (RBZ) has set up corrective measures to help curb the abuse of commercial bank loan facilities.
The new measures come following the Financial Intelligence Unit (FIU) findings from investigating certain entities for abuse of the loan facilities.
Since last month the FIU was carrying out investigations on possible abuse of loan facilities by 15 entities.
In a statement, the RBZ Governor Dr John Mangudya said on the basis of the FIU findings, the Bank has put in place corrective measures, with effect from 1 July 2022.
“No bank shall extend a loan to an entity or individual at an interest rate below the prevailing Bank policy rate. Banks shall implement appropriate due diligence measures to ensure that borrowing by holding entities on behalf of their subsidiaries are properly justified and that the loans are used strictly for the intended purpose,” said Dr Mangudya.
He said banks shall implement similar measures in the case where an entity borrows on behalf of an associated entity.
Dr Mangudya said banks shall also ensure effective credit risk management, including loan monitoring and enforcement of loan covenants, client visits and other measures to ensure that borrowings are used for the intended purposes.
Whilst also ensuring compliance with the prescribed prudential lending limits provided under the Banking Regulations SI 205 of 2000.
“More particularly that: the aggregate of loans and advances outstanding at any time or any single obligor shall not exceed 25% of a banking institution’s capital base; and the aggregate of loans and advances outstanding at any time to any corporate group shall not exceed 75 percent of a banking institution’s capital base or 25 percent to any single member of such corporate group,” he added.
He said the FIU shall monitor transactions on an ongoing basis to ensure that loan proceeds as well as entities’ own revenues are not diverted to the illegal foreign exchange parallel market and to take punitive action where abuses are identified.
Dr Mangudya said whilst the suspension of lending to the investigated entities has been lifted with effect from 17 June 2022, any entity found to have actively engaged in exchange rate manipulation in order to derive illicit gains from loans shall also be referred for prosecution.
“Boards of directors should enhance oversight on the management, reporting and performance of large exposures and group exposures. The Bank will continue to monitor the effectiveness of banking institutions’ credit management practices and compliance with applicable laws and regulations.”
Some of the findings showed that the majority of the entities investigated had adopted business models based on arbitrage, whereby they made 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, this was enabling them to easily pay off the loans from a portion of the proceeds, and start the borrowing cycle again.
While most of the entities generate significant revenues, in either ZW$ or US$ or both, which are sufficient to cater for their working capital requirements, instead of using own revenues, they opted to fund most of their working capital requirements from the concessionary loans.
“Some of the entities investigated abuse 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,” said Dr Mangudya.
