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

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

HARARE, August 28 (The Source) – Zimbabwean banks have significantly increased their holdings of treasury bills (TBs) by 87 percent in the six months to June, results from reporting banks show as government continues to dominate borrowing at the expense of productive sectors of the economy.
Statistics from the central bank show that the amount of TBs held by different institutions in the market, largely banks, increased by 20,25 percent to $2,5 billion as at June 30 from $2,079 billion held as at December 31, 2016.
Of the total TBs held in the market as at June 30 , $843,2 million (representing 33,7 percent) were issued to finance government expenditure. This shows that treasury bills issued for government budgetary support increased by 87 percent in only six months from $450 million in December 2016.
Zimbabwe government turns to borrow money from the domestic economy as its revenue collection fall short to cover expenditure, owing to a poor performing economy and inability to receive financial assistance from multilateral lenders due to its huge debt overhang.
This explains why on average, a sample of largest banks by asset base, that have reported their half year financial results show that their holdings of treasury bills have increased by 33,64 percent compared to the same period last year while loan and advances to productive sectors of the economy have on average slightly increased by 0,52 percent.
The sample includes Barclays bank Zimbabwe whose loan and advances have decreased by 10,27 percent to $113.5 million, while TBs holding has increased more than 8 times to $ 57,9 million from $ 6,7 million held in the comparable period last year, representing 12 percent of total assets.
For CBZ, while loan and advances have increased by 4,23 percent to $911 million, TBs holding has increased by 8,36 percent to $814,5 million from $751,6 million held in the comparable period last year, representing 41,4 percent of its total assets.
Additionally, for CABS, while loan and advances have increased by 11,53 percent to $594,33 million, TBs holding has increased by 48,8 percent to $131,57 million from $88,42 million held in the comparable period last year, representing 12,23 percent of total assets.
Ecobank’s balance sheet shows that loan and advances increased by 23,63 percent on prior year to $164,2 million while TBs holding has increased by 48,41 percent to $90,7 million from $132,8 million held in the comparable period last year, representing 22,85 percent of total assets.
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 utter the same sentiment.
CABS managing director, Simon Hammond told The Source on the side-lines of Old Mutual analyst briefing that 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.