Banks tighten lending terms

The central bank cannot effectively discharge its core function as the lender of last resort with a $1,35 billion debt in its books

Golden Sibanda Senior Business Reporter
THE impact of the current liquidity crunch may become more pronounced as it emerged banks have tightened their lending conditions by targeting high net worth clients to avoid contracting bad loans.

Industry sources said that while banks were actively lending to various sectors of the economy, they were now more selective and cautious in their lending, preferring mostly high net or credit worth clients.

This comes as banks prepare to participate in the interbank market, which resumed following a $200 million support facility from Africa Export Import Bank. Interbank lending was suspended in 2009.

“We are lending, all banks are lending, but what is happening now is that banks are now seeking high credit worth and net worth clients.

“Because of non-performing loans, banks have raised the bar; they are now looking for good, high net worth clients,” a source said.

Bank non-performing loans to total gross loans are the value of non-performing loans divided by the total value of the loan portfolio (including nonperforming loans before deduction of specific loan-loss provisions).

The loan amount recorded as a NPL should be the gross value of the loan as recorded on the balance sheet, not just the amount that is overdue

The source, an executive with one of the major financial institutions, said that while the interbank market had resumed on a good note, it was early days yet to really tell how effective it has been.

Analysts said that the interbank system was very critical for the purposes of helping banks with short positions to meet their obligations, say overnight, and put their liquidity position in order later.

Only last week, Industrial Development Corporation chief executive Mr Mike Ndudzo said subsidiaries under the industrial group required $50 million for bridging finance, but could not get it from the market.

He said at best, most banks were willing to restructure existing facilities in a development he attributed to frantic efforts by banks to clean up books to be able to actively participate on the interbank market.

Prior to resumption of the interbank market, banks with excess cash would not bail out others in short positions fearing inherent risk in the market, which if something went wrong, would also affect them.

Financial analysts said the situation in the financial market, while healthy for a safe and sound banking system, would hit hardest all companies struggling to secure funding for their working capital needs.

According to the Reserve Bank of Zimbabwe, NPLs reached an average of 19 percent in September last year, before easing to about 16 percent by December. RBZ said high NPLs restricted bank lending.

The central bank has since established a company; Zimbabwe Asset Management Corporation, which will take over NPLs to give financial institutions latitude to lend to productive sectors of the economy.

It was estimated that due to the high NPLs ratio, over $700 million was locked up in bad loans and banks started cutting down on lending to cushion themselves in what was detrimental to the economy.