RBZ to handover exchange rate manipulators for prosecution

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By Alois Vinga

THE Reserve Bank of Zimbabwe (RBZ) is set to hand over 15 loans abusing entities for prosecution after investigations revealed they accessed loans for speculative reasons which destabilized the exchange rates market.

The central bank also moved to tighten screws on bank loans to avoid similar occurrences in future.

This comes shortly after the RBZ moved to temporarily ban credit extension to companies and individuals last month when the value of the Zim$ shot through the roof reaching a high US$1: ZW$ 400 on the parallel market.

Through the Financial Intelligence Unit (FIU), the central bank launched an investigation to ascertain the extent of abuses perpetrated by the errant companies and individuals.

In a statement Friday, RBZ governor, John Mangudya announced that completed investigations on possible abuse of loan facilities by 15 entities had unearthed deep rot where the companies made significant profit margins by borrowing at concessionary terms.

“Whilst the suspension of lending to the investigated entities has been lifted with effect from 17 June 2022, any entity found to have actively engaged in exchange rate manipulation in order to derive illicit gains from loans shall also be referred for prosecution,” he said.

The RBZ however did not disclose the fifteen entities.

Mangudya said the findings revealed that such culprits would stock and then sell their products in US$ or in ZW$ at inflated parallel market exchange rates, thus enabling them to easily pay off the loans from a portion of the proceeds, and start the borrowing cycle again.

This was despite the fact that most of these entities generate significant revenues, in either ZW$ or US$ or both, sufficient to cater for their working capital requirements.

“Some of the entities investigated abuse their access to loans by “multi-dipping” across several banks. In one example, an entity concurrently accessed ZW$6,5 billion worth of loan facilities from 12 of the 16 banks.

“Many other entities would have loan facilities running simultaneously at five or more banks,” he said.

The central bank revealed that some of these unscrupulous elements would borrow for the benefit of third party entities while some holding companies would borrow heavily for subsidiaries, who themselves would be accessing similar cheaper loan facilities directly from the banks.

In some instances, loans were accessed as working capital, but diverted to third party entities for purposes of funding purchases of foreign exchange.

“As a result, with effect from 1 July 2022, no bank shall extend a loan to an entity or individual at an interest rate below the prevailing Bank policy rate coupled with the requirement for banks to implement due diligence measures to avoid arbitrage,” he said.

Mangudya also directed banks to ensure effective credit risk management, including loan monitoring and enforcement of loan covenants, client visits and other measures to ensure that borrowings are used for the intended purposes.

Banks were  ordered  to ensure compliance with the prescribed prudential lending limits provided under the Banking Regulations SI 205 of 2000  and that combined loans and advances to entities outstanding at any time or any single obligor shall not exceed 25% of a banking institution’s capital base.

He also directed that such aggregate of loans and advances outstanding at any time to any corporate group shall not exceed 75% of a banking institution’s capital base or 25% to any single member of such corporate group.

The FIU was tasked to block entities from diverting accessed loans to the foreign exchange parallel market and to take punitive action where abuses are identified.

“Boards of directors should enhance oversight on the management, reporting and performance of large exposures and group exposures.

“The Bank will continue to monitor the effectiveness of banking institutions’ credit management practices and compliance with applicable laws and regulations,” added Mangudya.