Lines of credit augmenting local bank deposits: BAZ

Local banks have been actively mobilising millions of dollars in lines of credit for on-lending, primarily to productive sectors of the economy, to supplement local deposits.

According to recent financial publications from various banks, almost all institutions have active lines of credit available for drawdown and some are currently exploring opportunities to secure more.

Old Mutual Zimbabwe (OMZIL), through its banking subsidiary CABS, reported mobilising a cumulative US$160 million in lines of credit in 2024.

The group’s focus in the first half of the year will be on deploying this capital to various projects of national interest.

Financial services group CBZ Holdings stated that its banking unit, CBZ Bank, raised US$93 million in lines of credit in 2024, which supported key sectors of the economy.

NMB Holdings, on its part, indicated that the bank is on track to draw down US$100 million from different providers of offshore lines of credit in 2025. In 2024, the bank secured over US$65 million in direct funding and trade finance limits from offshore Developmental Finance Institutions (DFIs).

Bankers Association of Zimbabwe (BAZ) president Mr Lawrence Nyazema explained that banks have obtained and continue to seek lines of credit to bolster what are essentially stagnant deposit levels.

“These funds are primarily used to support the productive sector, where banks are struggling to meet the demand for credit facilities,” he said.

“Total market deposits have averaged between US$3 billion and US$3.5 billion, hence the necessity to secure additional funding from external sources, with lines of credit being one such avenue.”

However, Mr Nyazema clarified that these lines of credit represent a cost rather than a primary source of earnings.

“They come with costs of almost 10 percent, and banks barely realise a significant margin when they on-lend. Their efforts are geared towards ensuring continued support for economic activity despite a challenging environment,” he noted.

At an analyst briefing last month, Old Mutual Zimbabwe chief executive Mr Samuel Matsekete, affirmed the group’s strong commitment to investing in and supporting the development of the economy.

“Over the past year, we mobilised an additional US$60 million, bringing our total to approximately US$160 million,” he said.

“Our primary focus in the first half will be to deploy that cumulative US$160 million effectively. We have also observed the need for some modifications based on customer demand.”

Mr Matsekete highlighted that the group has made several investments in areas such as renewable energy and infrastructure value chains within agriculture, mining, and tourism, among others.

Financial analyst, Mr Malone Gwadu, opined that the reliance on lines of credit indicates a substantial demand for funding to facilitate economic activity.

“Businesses across all sectors require funding to further capacitate their operations through working capital for farmers, asset financing for manufacturers, receivables financing for miners during export periods, as well as non-funded lines like letters of credit and guarantees that enhance trade between companies in different jurisdictions, particularly in light of the ACFTA agreement,” he explained.

He also suggested that lines of credit have the potential to become a significant earnings stream and serve as a coping mechanism for local banks facing the current tight liquidity situation in the market.-herald