18 May 2017

Zimbabwe: Afreximbank Extends U.S.$200 Million Facility for Banks

Photo: The New Times
Smale-scale traders at the Rubavu-Goma border post transact business (file photo).

THE African Export Import Bank (Afreximbank), has extended by two years a US$200 million facility released to the Reserve Bank of Zimbabwe (RBZ) in 2015 to finance the interbank market.

This is expected to ease liquidity pressures in the financial system as both the RBZ and the Cairo-based Afreximbank join hands in promoting the proper functioning of the economy and the stability of the banking sector.

The facility provides a window for banks to borrow from the RBZ for a maximum period of 90 days at an interest rate of between three and five percent.

It therefore accords the central bank the platform to play its lender of last resort function.

That window had closed early this year when the facility expired, but it has since been re-opened.

Central bank governor, John Mangudya, confirmed to the Financial Gazette's Companies and Markets that indeed they have received another fresh lease of life from Afreximbank.

"As part of measures to strengthen the stability of the financial sector, we have extended the US$200 million African Export-Import Bank trade debt-backed securities facility, which operates on the lines of the lender of last resort at the bank for local banks. This has been renewed for another two years, expiring in February 2019," he said.

An interbank market refers to a money market created to fund short-term funding needs of banks, which borrow from others that have surplus liquidity.

The interbank market had collapsed with dollarisation of Zimbabwe's economy in 2009, when the country ditched its own worthless currency.

Afreximbank's facility, called Afreximbank trade debt-backed securities (Aftrades), is also expected to boost confidence in the banking sector, which has been struggling to win back trust since many sector players folded in a wave of bank failures during the hyperinflationary era, between 2007 and 2008.

The Aftrades, coupled with other measures such as the recapitalisation of the central bank to the tune of US$100 million, the amended Banking Act, the establishment of the Zimbabwe Asset Management Company and a functional credit reference system, would make the banking sector stronger and safer.

The banking sector is currently comprised of 13 commercial banks, one merchant bank, four building societies and one savings bank.

Banks have been saddled with high levels of non-performing loans (NPLs), which affect the level of confidence in the system.

NPLs reached a peak of 20,45 percent in terms of their ratio to total loans in 2014, reaching close to US$1 billion, before declining to 7,87 percent at the end of December 2016.

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