BY BUSINESS REPORTER
The Reserve Bank of Zimbabwe (RBZ) has ordered banks to carry out on-site visits to customers who have taken out loans to ensure money is being used for its intended purpose, among other strict measures.
In a statement on Friday, RBZ Governor John Mangudya said his Financial Intelligence Unit (FIU) had completed investigations into possible abuse of loan facilities by 15 entities and found that the majority were using arbitrage-based business models.
“They make large profit margins by borrowing on concessional terms, storing and then selling their produce in US dollars or Zimbabwean (ZW) dollars at inflated exchange rates in the parallel market, allowing them to easily repay loans. part of the proceeds and start the borrowing cycle again,” Mangudya said referring to the findings of the FIU investigation.
“Most of these entities generate significant revenue, either in Zimbabwean dollars or US dollars, or both, which is sufficient to meet their working capital needs. Instead of using their own income, they choose to fund most of their working capital needs from concessional loans. »
He added: “Some of the entities investigated are abusing their access to ‘multi-dipping’ loans at multiple banks. In one example, an entity simultaneously accessed credit facilities worth ZW$6.5 billion from 12 of the 16 banks. Many other entities would have loan facilities operating simultaneously at five or more banks.”
The FIU revealed cases where banks would access loans, ostensibly for their own working capital, but in reality for the benefit of third-party entities, either within the same group or unrelated.
There were also cases where a holding entity, with little or no own operations, borrowed heavily from subsidiaries, which themselves would have access to similar cheaper loan facilities directly from banks.
“These arrangements are a form of abuse of the financial system for material gain by taking advantage of cheaper borrowing and repaying when exchange rates have depreciated.
“In some cases, the loans were accessed as working capital but diverted to third-party entities for the purpose of financing currency purchases at the auction on behalf of the financing entities,” he said. -he declares.
In response, effective July 1, Mangudya said that no bank would provide a loan to any entity or individual at an interest rate lower than the prevailing bank rate.
“Banks shall implement appropriate due diligence measures to ensure that borrowings by holding entities on behalf of their subsidiaries are duly justified and that loans are used strictly for the intended purposes. Banks should implement similar measures where an entity is borrowing on behalf of an associated entity,” he said.
“Banks must also: (a) ensure effective credit risk management, including loan monitoring and enforcement of loan covenants, customer visits and other measures to ensure that loans are used for intended purposes; and (b) ensure compliance with the prudential lending limits prescribed by Banking Regulations SI 205 of 2000, and more specifically that: the aggregate of loans and advances outstanding at any time or for any single obligor shall not exceed 25% of the capital of a banking institution capital base, and the total loans and advances outstanding at any time to a group of companies shall not exceed 75% of the capital base of a banking institution or 25% to a single member of this group of companies. »
The FIU will also monitor transactions on an ongoing basis to ensure that loan proceeds as well as entities’ own revenues are not diverted to the illegal parallel foreign exchange market and to take punitive action when abuses are identified.
In addition, any entity found to have actively participated in the manipulation of exchange rates in order to derive illicit gains from loans will also be subject to prosecution.
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