By Alois Vinga
THE Reserve Bank of Zimbabwe (RBZ) has warned banks against funding companies with negative balances in accessing foreign currency from the auction system.
This comes after the Foreign Exchange Auction System has registered significant increase in both the number of bids and the value thereof.
The auction system kicked off with just under 100 bids valued at US$11 million and has surpassed over 500 bids valued at around US$40 million at both the Main and SME auctions.
But in a statement Wednesday, RBZ governor, John Mangudya reminded banks not to facilitate transactions on behalf of applicants who have enough local currency in their accounts to finance their bids.
“It has come to the attention of the Bank that some banks are not paying particular attention to this requirement and have instead been extending overdraft facilities to finance their customers’ bids.
“In line with the Bank’s monetary policy targeting framework designed to control the growth of money supply, funding of bids through overdrafts and advances is discouraged,” he said.
The central bank chief urged banks to extend lending limited to a maximum of 50% of a bid where it is extremely necessary.
Under such circumstances, bidders would be required to have in their accounts a minimum balance equivalent to 50% to cover their bids.
The banks are further reminded to conduct full Know Your Customer (KYC) checks on their clients, and should not be complicit or connive in malpractices with their customers.
To date, the Bank’s Exchange Control Division and the Financial Intelligence Unit (FIU) efforts to deal with malpractices have resulted in 12 entities being banned from participating in the foreign exchange auction whilst 62 entities are under the FIU watch list.
The auction system has been applauded by the country’s business community for resolving decades old economic problems characterised by high inflation, price instability and exchange rate distortions.
Over 100 companies have to date received US$640 million on the auction which has become the largest source of foreign currency for the country’s economic sector.