Omega Ukama 
CBZ Holdings (CBZ), Zimbabwe’s largest financial services group, says it will lean on US$ lending and other business lines for the foreseeable future, as inflation has become a major hindrance for ZWL lending.
Zimbabwe’s annual inflation rose to 131,7 percent in May, hitting three digits for the first time since June last year.
This was a sharp increase from 96,4 percent in April and up from 72,7 percent in March, and 60,74 percent in December.
On a month-on-month basis, the inflation rate, at 21 percent, was up 5,5 percentage points on the April 2022 rate of 15,5 percent, marking the highest monthly rise in a year.
CBZ chief executive Blessing Mudavanhu
“As inflation goes up, interest rates also go up and banks are constrained from getting a reward for the risk. Luckily, CBZ has grown significant numbers of business lines to be able to mitigate against reliance on lending,” CBZ’s chief executive, Blessing Mudavanhu told journalists last week.
The group’s chief finance officer, Tawanda Gumbo, said: “Inflation has a huge impact on the value of our balance sheet, but because of the type of business that we’re doing at the moment, particularly in the mining sector, the deposits that we have grown in US dollars are quite significant. And the encouragement across all the business sectors, inclusive of the new digital platforms that we created, is to generate more hard currency as much as possible, supporting businesses that export and generate forex in this environment because that’s the one way we can ensure that the returns we get from type of business (lending) will ensure that our balance sheet remains strong”.
“The main focus going forward, if inflation continues to get out of control, would then be to focus on those businesses that can generate forex … and therefore retain the strength of our balance sheet in this environment,” he added.
Banks in Zimbabwe have maintained a cautious lending approach over the past few years due to high inflation.
Total banking sector loans and advances increased by 61 percent to $229,94 billion during the half-year to December 2021, but this was largely attributed to the translation of foreign currency denominated loans.
As at December 31, 2021, foreign currency denominated loans constituted 36,87 percent of total banking sector loans, an increase from 30,16 percent reported as at June 30, 2021. These numbers also represent sub-par loans-to-deposits of about 50 percent. Ideally, according to the RBZ, the ratio should be 70 percent. The metric shows the sector’s ability to cover loan losses and withdrawals by customers.
If the ratio is too high, it means that banks may not have enough liquidity to cover any unforeseen fund requirements. Conversely, if the ratio is too low, a bank may not be sweating its financial assets enough to earn interest, in this case, due to inflation.
Zimbabwe has the highest annual inflation rate compared to its SADC counterparts.
The Zimbabwe dollar has also continued to depreciate against major currencies, as inflationary pressures in the southern African economy have been worsened by the Russia-Ukraine conflict. Fiscal and monetary authorities have been fretting over inflation, which has been spiralling out of control, as pressure continues to build all around for authorities to act decisively on skyrocketing prices of basic goods.
Recently, President Emmerson Mnangagwa imposed capital controls, which have stoked resurgent inflationary pressures in the economy.
The new policies were aimed at discouraging usage of US dollars and incentivising the adoption of the local currency in domestic transactions — thereby stabilising surging inflation and prices, and also assuaging the parallel market.
The measures included a temporary suspension of lending by banks to both the government and the private sector “to minimise the creation of broad money that is prone to abuse for purposes of manipulating the exchange rate”.
The central bank had increased its policy rate from 60 percent to 80 percent, while also reviewing upwards the medium-term bank accommodation facility interest rate from 40 percent to 50 percent per annum in response to the resurgent inflationary pressures.
The new measures also included assurances of the continuation of managed de-dollarisation to douse fears of a rushed return to a mono-currency system. Domestic foreign currency transfers will now attract an intermediated money transfer tax of four percent.
Industry says elevated inflation, which has seen a spike in operating expenses in the first and second quarter of the year, continues to stalk the manufacturing sector, fuelling widening fears that the inflationary headwinds will persist in the second half of the year driven by wage increases demand pressure.
Imara Asset Management’s chief executive, John Legat, says inflation is always a monetary phenomenon, hence the government should contain money supply to stem it.
“To resolve the problem of a devaluing currency, rising prices and a booming stock market would simply need to cease creating excess money in the first place since that is the financier behind these symptoms,” he said. The Confederation of Zimbabwe Industries says there is a need for a noticeable policy shift as the current policy domain is proving to be insufficient to control inflation.
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