Bank loans fall drastically in real terms

Economist John Robertson says although Zimbabwean banks have significantly increased credit into the economy, the real value of those loans has drastically fallen due to the depreciation of the local currency coupled with high inflation rates.

On the exchange rate measure, the Zimbabwe dollar fell from $6,62:US$1 to $75,75:US$1, comparing June 2019 with June 2020.

That amounted to a 91 percent depreciation, according to Robertson.

On the other hand, inflation stood at 737,26 percent between June 2019 and June 2020.

This is at a time central bank figures for the month of June 2020 showed that credit to public non-financial corporations increased by 564,10 percent; private sector, 527,58 percent; and other financial corporations, 317,77 percent.

On a month-on-month basis, credit to the private sector increased to $32,19 billion while net credit to Government amounted to $11,29 billion.

According to Robertson, Zimbabweans are again having their impressions distorted by the way that high inflation and the falling value of the Zimbabwe dollar generate rapidly rising numbers of Zimbabwe dollars in the official statistics.

“The high inflation is energised by uncertainty as much as by past events that caused money supply to grow without support from rising production; both lead to rising numbers of Zimbabwe dollars, all with falling values,” Robertson said.

Figures from the Reserve Bank of Zimbabwe show that broad money stood at $99,82 billion as at end June 2020, up from $59,48 billion recorded in May 2020.

Of that amount, local currency deposits accounted for $40,91 billion or 40,97 percent.

Robertson looked at three areas, mortgages, agriculture and construction to show the level of business activity in the economy.

Analysing the impact the monetary changes have had on business activity, Robertson observed that the inflation-adjusted figure for mortgages fell from $244 million to $45,2 million, a fall of 81,5 percent.

Over the same 12 months, mortgages in adjusted US dollar values fell from US$63,7 million to US$11,39 million, and this was a fall of 82 percent,” he said.

Robertson said lending to the agriculture has remained fairly stable when comparing the June 2020 figures with the June 2019 figures.

He said Government guarantees to banks have helped keep lending to agriculture fairly stable.

The RBZ says agriculture got 26,16 percent of credit to the private sector during the month of June.

In current Zimbabwe dollars, lending to construction projects increased 114 percent, but adjusting the value of the dollars for inflation, the loans fell by 74 percent between June 2019 and June 2020.

Adjusting for the exchange rate changes over the 12 months, the value of the loans fell by 75 percent.

Central bank records show that the construction got less than one percent of credit to the private sector.

However, the evidence in many suburban areas of increasing construction activity suggest that informal incomes, assisted by Diaspora cash inflows, might be allowing informal construction teams to side-line the banks, Robertson observed.

“In Zimbabwe, more than half the earnings depended upon by the population are generated through informal activities and no records can be collected or studied to work out trends.

“The informal sector seems to be keeping millions of people alive,” he said in a research note.

The renowned economist said although investment inflows that might have made business activity better in Zimbabwe have been slow in coming, improvements in the pace of investment, plus the slow disappearance of the black market exchange rate, might allow improvements to begin.-ebusinessweekly.co.zw