Indigenous banks to source international credit lines

Published: 21 October 2013

The softening by Government of its stance on banks with regard to the indigenisation programme is one that both the private sector and the banking sector should cheer.

It is a position that not only strengthens banking confidence but also paves way for FDI and economic development.

The importance of the banking sector to economic growth can never be over emphasized. Economic studies have proven that the banking sector is critical to economic growth and any polices aimed at the sector should be applied with caution to avoid creating any instability that may affect all the other economic sectors.

It is therefore important to highlight the areas that need attention in the banking sector especially with reference to liquidity constraints.

In order to enhance the banking and finance sector's global competitiveness, the Business Council of Zimbabwe in their report emphasized that the following must be addressed:

Indigenous banks to source international credit lines
The report emphasised that Indigenous banks need to be aggressive in sourcing international credit lines in order to expand their intermediation activities and fuel an economy desperately yeaning for liquidity. In order to access those credit lines, certain factors need to be considered.

International credit lines are predicated on indigenous banks' balance sheets, and in particular, their capital adequacy ratios, credit risk management policies, the security package that can be provided by the third party borrowers, among others.

It is critical to ensure that the availability and cost of credit do not constrain economic activity.

The current situation in terms of accessing credit lines is definitely hampering economic activity. The terms do not allow for the much needed infrastructure developments and as such industry continues to work with outdated machinery and no real working to undertake any investment into research and development. This means industry continues to lag behind international developments and will remain uncompetitive.

Foreign owned banks also need to start expanding their activities in long term lending, especially in relation to project finance and corporate finance. The local banking sector (both indigenous and foreign owned) is busy and preoccupied with short term lending at punitive interest rates, with the resultant consequence of suffocating the productive sectors.

Access to financial services
The banking and finance sector acknowledge that access to financial services is fundamental to the indigenisation drive and to the development of the economy as a whole.

It is therefore recommended that strategies would be put in place to ensure that the banking and finance sector is more efficient in the delivery of financial services, which enhance the accumulation of savings and direct them to development initiatives.

Confidence rebuilding for the nation
Given that the banking sector thrives on confidence from full and consistent capitalization and prudent corporate governance to attract deposits and offshore credit lines and for lending purposes.

In this regard, it is important for indigenous banks to grow and protect their own brands which can successfully compete with the foreign owned banks.
- herald