Zimbabwe banks pile up on government paper as private sector gets squeezed out

For FBC Bank limited, while loan and advances have decreased by 8.61 percent to $184.9 million, TBs holding has increased by 41.25 percent to $76.6 million from $54.3 million held in the comparable period last year, representing 14.6 percent of total assets.

State owned bank POSB’s balance sheet as at June30, shows that loan and advances have slightly increased by 1.94 percent to $74.4 million, while TBs holding has increased by 21.36 percent to $55.5 million from $45.7 million held in the comparable period last year, representing 29.39 percent of total assets.

Another state owned bank, Agribank’s balance sheet shows that the amount of TBs and loans and advances are almost equal , with loan and advances amounting to $80.3 million against TBs holdings worth $76.6 million, TBs represents 35.63 percent of total assets.

The position that all banks are increasing their TBs holdings, with some reducing their loans and advances to customers, shows that TBs are crowding out the private sector, a position which is not health for economic development.

Although the issuance of treasury bills for acquisition of non-performing loans (NPLs), capitalisation of institutions and RBZ debt assumptions, are welcome developments to resuscitate some institutions, what remains a concern is the level of TBs issued towards supporting government expenditure, which now constitute the larger chunk.

Even the Minister of Finance, Patrick Chamisa said in his mid-term national budget review, it is critical, that an equilibrium position of a sustainable fiscal deficit is ascertained to ensure that ‘TBs do not crowd out foreign exchange in the market’.

The governor of reserve bank, John Mangudya also uttered the same sentiment.

CABS managing director, Simon Hammond said that the government should manage the amount of public debt to avoid crowding out other productive sectors, in particular, the private sector.

“Collectively at a macro scale, government should not be crowding out the private sector in terms of borrowing. As an economy we shouldn’t be borrowing particularly to finance the recurrent expenditure at the expense of the private sector,” Hammond said.

Banks seem to prefer TBs, which they view as safer relative to loans, given the high credit risk in the market, but a leading research firm and stockbroker, MMC Capital warned that TBs are not sustainable in the medium to long-term.

“Despite the surge in profits, the sustainability of banking sector earnings make us less enthusiastic given that interest income was chiefly boosted by the rediscounting of Treasury Bills, a development which we see as unsustainable,” MMC Capital said in its economic report.

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