Banks wary of govt’s $18bn stimulus

BANKS are treating state guarantees extended under the government’s Covid-19 stimulus package with caution, business revealed last week, warning the country to brace for extensive deindustrialisation in the absence of fresh bailouts.

The $18 billion package was meant to help firms ride out the storm precipitated by Covid19-induced lockdowns.

But disclosures by the Zimbabwe National Chamber of Commerce (ZNCC) in a paper to the Finance ministry demonstrate how difficult it will be for firms to return to full production as the economy emerges out of damaging restrictions.

Government decided only three weeks ago to underwrite drawdowns by companies under the package announced by President Emmerson Mnangagwa on May 1.

His intervention came after it became clear that lockdowns would cripple firms, which were already battling to forestall a gruelling crisis before the pandemic struck.

The ZNCC said government’s late offer to banks had failed to convince financial institutions that bailing out firms would not push up their non-performing loans and drive them to another crisis.

The paper said instead of relying on banks, government can explore several options to bail out firms, including turning the Industrial Development Corporation (IDC) into a lender.

“The $18 billion stimulus package cannot be an affair between banks and private sector players alone,” the ZNCC said in its submission to government for the 2021 budget.

“The credit guarantee arrangement with the government is not offering enough comfort to banks to lend to the private sector. Government has to offer significant tax relief to businesses or set a fund for drawdown by businesses,” the ZNCC said.

Governments worldwide have announced and honoured a combined package of over US$5 trillion to keep firms running, with England undertaking to pay up to 80% of companies’ wage bills as firms stared multiple bankruptcies.

Zimbabwe’s industries say they have not received a dime out of the much-hyped window.

Uncertainties stemming out of a prolonged economic crisis have forced Zimbabwe’s banks to pursue a cautious lending strategy.

The ZNCC wants government to recapitalise the IDC to the tune of US$100 million to bolster its capacity to intervene in industries.

After the transformation, the IDC will then operate along the lines of the Industrial Development Corporation in South Africa, which has been carrying out direct interventions in Zimbabwe, extending loans to vital institutions like Agribank.

“The IDC should be restructured to make it a development finance institution which supports industry than for it to remain an investment vehicle as it is now,” the ZNCC said in a paper presented to government, spelling out its expectations in the 2021 budget.

“There is need to capacitate IDC by US$100 million, which is equal to the minimum capital requirements for large indigenous commercial banks and all foreign banks.”

Up to US$2 billion is required to power manufacturing sector firms to produce at full throttle.

Industrialists have also said domestic banks are ill equipped to bankroll companies due to a liquidity stress roiling the financial system.