Zim banks shun corporates: AfDB

HARARE – Zimbabwe’s financial services now prefer lending to individuals in favour of risky corporate borrowers, the African Development Bank (AfDB) has said.

In its March 2015 Monthly Report on Zimbabwe, the regional banking group said individuals continued to borrow more than productive sectors of the economy, partly because banks prefer extending credit to individuals.

“They are perceived to be safer as the loans are primarily retired from salary income through stop orders. Moreover, with generally low average employment incomes, many employees engage in small businesses to supplement employment income and therefore individual borrowing is not necessarily for consumptive purposes,” the AfDB said.

Statistics from the multilateral lending institution shows that total credit to the private sector marginally increased by 0,11 percent in February 2015 from $2,87 billion in February 2014.

“About 81,44 percent of private sector credit was extended as loans and advances, which were mainly channelled to individuals and agriculture,” said the bank.

In the period under review, lending rates for individuals remained higher than those of corporates.

Statistics from AfDB revealed that lending rates for individuals and corporates increased from 14,64 percent and 9,85 percent in February 2014 to 15,61 percent and 11,28 percent in February 2015, respectively.

Local financial institutions have maintained that the high interest rates are a result of the level of risk associated with offshore borrowing which has been expensive.

The difference between lending and deposit rates is high compared to regional levels. The spread between lending and deposit rates for Namibia, Botswana and South Africa is said to be around five percent compared to 15 percent in Zimbabwe.

This comes as economists say the closure of companies, liquidations, property attachment over debt and continued spiralling of unemployment indicates that the economy remains fragile.
Zimbabwean companies – currently operating at approximately 36 percent of capacity utilisation, according to the Confederation of Zimbabwe Industries – are choking due to high production costs and stiff competition from cheap imports.

In one of its recent reports, the AfDB indicated that despite various measures intended to rescue the manufacturing sector through the 2015 National Budget Statement, competitiveness of manufactured products was compromised mainly due to high production costs compared to those prevailing in neighbouring countries.

“On average, Zimbabwean firms’ borrowing costs – estimated at an average of 28 percent in 2013 – are twice to three times the levels observed in the region,” AfDB said.

“The real weighted average lending rates for corporates and individuals tightened over the period December 2013 to December 2014 with possible negative effects on aggregate output growth as the cost of borrowing for investment and consumption increases.”

AfDB said average cost of commercial electricity in Botswana, Mozambique, South Africa and Zambia was 8,3 United States cents per KWh, which is 57 percent of what Zimbabwean businesses pay for electricity.

Zimbabwe businesses also pay on average twice as many taxes for imported inputs than neighbouring countries due to high import tariff levels – inclusive of the introduced 25 percent import surtax,” the bank said.

Meanwhile, the regional financial institution noted that total domestic credit growth however decelerated from 8,49 percent in February 2014 to 3,57 percent in February 2015 on the back of slow economic growth, high credit risk and liquidity shortages.

“Government borrowing remains the main driver of domestic credit growth since November 2013 as the Government revenue base remains constrained due to subdued economic activity, high informalisation of the economy and declining commodity prices, among other factors,” read part of the report

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