HomeNewsBanking sector interference to intensify: EIU

Banking sector interference to intensify: EIU

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STATE interference in the fragile financial services sector is expected to intensify in the run-up to the forthcoming general elections, a global think tank has warned.

Report by Bernard Mpofu

The Economist Intelligence Unit (EIU), a research unit which has offices in London, New York and Hong Kong, on Monday warned that the banking sector could likely be affected by political expedience ahead of the next watershed elections which will mark an end to the inclusive government formed in 2009.

Already, some sections in government have made several pronouncements that have sent shivers to the sector. For instance, foreign-owned banks operating in the country are expected to surrender controlling stakes to locals.

“Political risk is set to rise in the run-up to elections. In previous polls, Zanu PF has maintained its position through a combination of intimidation and electoral manipulation, and there is little sign that its strategy will be substantially different in the next elections,” reads the report in part.

“State interference in the financial sector continues with ministers demanding that foreign banks cede 51% of their shares to black Zimbabweans by mid-2013.

“However, a number of foreign-owned banks are looking to expand operations,” the EIU said.

Apart from the indigenisation regulation, Reserve Bank of Zimbabwe and the Ministry of Finance last year ordered banks to lower bank charges as well as cap annualised lending rates to 12,5% above the bank’s weighted average cost of funding. Finance minister Tendai Biti recently said government is considering crafting a law which compels all banking institutions to list on the Zimbabwe Stock Exchange. Currently, six out of the over 20 registered banking institutions are trading on the local bourse.

The EIU also forecast that the country will continue to face liquidity constraints due to low foreign direct investments.

“The government has made only limited payments on its external debt since 2000. Foreign-exchange shortages are expected to continue, and the government’s poor repayment record is unlikely to improve in the near term,” reads the forecast in part.

“The abandonment of the use of the Zimbabwe dollar (in favour of the US dollar) has led to a substantial improvement in currency stability, but risks remain, not least because some influential politicians are committed to the re-introduction of the Zimbabwe dollar after the next elections.”

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