HARARE — Zimbabwean banks have significantly increased their holdings of treasury bills (TBs) by 87% in the six months to June, results from reporting financial institutions show as government continues to dominate borrowing at the expense of productive sectors of the economy.
Statistics from the central bank show that the amount of TBs held by different institutions in the market, largely banks, increased by 20, 25% to $2,5 billion as at June 30 from $2,079 billion held as at December 31 2016.
Of the total TBs held in the market as at June 30, $843,2 million (representing 33,7%) were issued to finance government expenditure.
This shows that TBs issued for government budgetary support increased by 87% in only six months from $450 million in December 2016.
The Zimbabwean government turns to borrow money from the domestic economy as its revenue collections fall short to cover expenditure, owing to a poor performing economy and inability to receive financial assistance from multilateral lenders due to its huge debt overhang.
This explains why on average, a sample of largest banks by asset base that have reported their half year financial results show that their holdings of TBs have increased by 33,64% compared to the same period last year while loan and advances to productive sectors of the economy have on average slightly increased by 0,52%.
The sample includes Barclays Bank Zimbabwe, whose loan and advances have decreased by 10,27% to $113,5 million, while TBs holding has increased more than eight times to $ 57,9 million from $ 6,7 million held in the comparable period last year, representing 12% of total assets.
For CBZ, while loan and advances have increased by 4,23% to $911 million, TBs holding has increased by 8,36% to $814,5 million from $751,6 million held in the comparable period last year, representing 41,4% of its total assets.
Additionally, for CABS, while loan and advances have increased by 11,53% to $594,33 million, TBs holding has increased by 48,8% to $131,57 million from $88,42 million held in the comparable period last year, representing 12,23% of total assets.
Ecobank’s balance sheet shows that loan and advances increased by 23,63% from prior year to $164,2 million, while TBs holding has increased by 48,41% to $90,7 million from $132,8 million held in the comparable period last year, representing 22,85% of total assets.
For FBC Bank Llimited, while loan and advances have decreased by 8,61% to $184,9 million, TBs holding has increased by 41,25% to $76,6 million from $54,3 million held in the comparable period last year, representing 14,6% of total assets.
State-owned bank POSB’s balance sheet as at June 30, shows that loan and advances have slightly increased by 1,94% to $74,4 million, while TBs holding has increased by 21,36% to $55,5 million from $45,7 million held in the comparable period last year, representing 29,39% of total assets.
Another state-owned bank, Agribank’s balance sheet shows that the amount of TBs and loans and advances are almost equal, with loan and advances amounting to $80,3 million against TBs holdings worth $76,6 million, with TBs representing 35,63% of total assets.
The position that all banks are increasing their TBs holdings, with some reducing their loans and advances to customers, shows that TBs are crowding out the private sector, a position which is not healthy for economic development.
Although the issuance of TBs for the acquisition of non-performing loans (NPLs), capitalisation of institutions and RBZ debt assumptions, are welcome developments to resuscitate some institutions, what remains a concern is the level of TBs issued towards supporting government expenditure, which now constitutes the larger chunk.
Even Finance minister Patrick Chamisa said in his mid-term national budget review, it is critical that an equilibrium position of a sustainable fiscal deficit be ascertained to ensure that “TBs do not crowd out foreign exchange in the market”.
Reserve Bank of Zimbabwe governor John Mangudya also shared the same sentiments.
CABS MD Simon Hammond said government should manage the amount of public debt to avoid crowding out other productive sectors, in particular, the private sector.
“Collectively at a macro scale, government should not be crowding out the private sector in terms of borrowing,” he said.
“As an economy, we shouldn’t be borrowing, particularly to finance the recurrent expenditure at the expense of the private sector.”
Banks seem to prefer TBs, which they view as safer relative to loans, given the high credit risk in the market, but a leading research firm and stockbroker, MMC Capital warned that TBs are not sustainable in the medium to long-term.
“Despite the surge in profits, the sustainability of banking sector earnings make us less enthusiastic given that interest income was chiefly boosted by the rediscounting of treasury bills, a development which we see as unsustainable,” MMC Capital said in its economic report.
An analyst said rather than holding TBs, banks should support the informal sector by coming up with tailored innovative products aiming to boost this growing sector.
“There is need for the banking sector to come up with products that target the informal sector as contribution of this sector to the aggregate economic activity continues to grow,” an analyst said.
He welcomed the recent developments that will see the establishment of a dedicated micro, small and medium enterprises banking unit.
If the government continues to finance its budget deficit through TBs, this will curtail the amount of loans that banks extend to other productive sectors of the economy.
Such behaviour will result in an economic downswing, reducing revenues the government collects through taxes and spurring the government’s need to borrow even more money, which will worsen the vicious cycle of borrowing and crowding out.