BANKS have recorded a sharp increase in lending activity, with the total value of loans rising from a rebased ZiG20 billion in April last year to ZiG48 billion by the end of November, according to sector data released this week.
The 140% surge reflects both new loans and the impact of exchange rate movements on United States dollar-denominated lending, but it has sparked caution among leading economists.
Lawrence Nyazema, president of the Bankers Association of Zimbabwe (BAZ), confirmed the significant growth in loans and advances, attributing the increase to a combination of fresh lending and the translation effect of exchange rate fluctuations.
“Bank loans and advances increased from a rebased ZiG20 billion in April 2024 to about ZiG48 billion at the end of November 2024, with the growth indicating both new loans and the translation impact of exchange rate movements on USD loans,” Nyazema said.
However, economist Gift Mugano cautioned that the growth posed risks, particularly if borrowers struggle to repay.
“I think the increase is a good thing because this will be used mainly in production. As far as I know, on average, 75% of the loans go into production,” he said.
“So, the only (effect) is the high cost of the loans that some companies might find difficulty in terms of paying back and also the economy to function.”
The rise in borrowing comes as the government continues efforts to revive an economy that has been in decline for over two decades.
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However, the devaluation of the Zimbabwe Gold currency has significantly driven borrowing, as businesses and individuals grapple with escalating costs, according to development economist Chenayimoyo Mutambasere.
“The increase in bank loans and advances is largely due to the devaluation of the ZiG,” she said.
“This growth reflects the translation effect of United States dollar-denominated loans and higher borrowing needs as businesses and individuals face rising costs due to currency devaluation.
“For the banking sector, the devaluation inflates loan books but increases repayment risks, particularly for United States dollar loans.
“While banks may see higher interest income, they also face potential challenges with non-performing loans and capital adequacy,” Mutambasere said.
She highlighted that the growth in lending underscores the currency instability plaguing Zimbabwe’s economic environment.
“If this growth was aligned to productivity, then we would observe more start-up companies or business expansions as opposed to retailers exiting the economy,” Mutambasere said.
“This could also signify delays in payment cycles so that businesses have to increase their short-term borrowing to maintain liquidity while they await payments from customers.”
However, economist Stevenson Dhlamini warned that the increase in borrowing might be masking a more troubling trend, where businesses and individuals are using loans to finance consumption rather than investment.
“The increase in bank loans and advances may not have the desired impact on the economy judging from the economic stagnation experienced in the same period,” he said.
“The negative real gross domestic product growth experienced, depressed industrial production, low capacity utilisation, and dampened business confidence all suggest that the economy was struggling.
“All this is despite banks lending more, which could be indicative of a few issues.”
l The exchange rate in April 2024 & November 2024 was US$1: ZiG13,4 & ZiG25,5, respectively.
