Zimbabwe controversy compromises trade finance access
The failure by Zimbabwean bank Interfin to disburse funds that were meant to be used under the Zimbabwe Economic Trade Revival Facility (ZETREF) could compromise the country’s relationship with international development banks.
Zimbabwe’s ministry of finance announced this week that Interfin’s illiquidity has undermined the performance of ZETREF, a US$70mn facility jointly funded by the government of Zimbabwe and the African Export Import Bank (Afreximbank).
According to the official statement, US$17.4mn of the government’s US$20mn contribution to the facility is currently held up at Interfin, with the remaining US$2.6mn having been disbursed in October 2011. Afreximbank requested the release of the overall amount in September 2011, but Interfin failed to disburse the funding despite follow-up meetings and letters.
Afreximbank’s US$50mn contribution to ZETREF is directly disbursed from the bank and has therefore not been affected by the case. However, Interfin is also holding up US$9.7mn of a separate facility extended by Afreximbank, and US$21mn availed by the Eastern and South African Trade and Development Bank (PTA Bank).
Zimbabwe’s Reserve Bank put Interfin under curatorship on June 11, 2012 for a period of six months, citing “critical liquidity challenges”.
Omen Muza, managing director at Trade Finance Corporation Capital (Zimbabwe), explains to GTR that the issue is likely to affect trade finance in the country, as what happens to Interfin will have a bearing on the overall risk profile of local bank borrowers, and may result in PTA and Afreximbank becoming more risk-averse.
“Zimbabwe can ill-afford to lose the critical support of key pan-African players such as Afreximbank and PTA Bank,” he adds.
Moreover, as Interfin is the Local Administration Agent (LAA) of ZETREF, its six-month curatorship is likely to affect the disbursement of the revival fund for local companies. “Depending on what the facility agreement says, another LAA may have to be appointed, which cannot be done overnight. The overall impact is to delay or slow down disbursement of the much-needed trade revival funds against the backdrop of an illiquid market,” Muza adds.
In its statement, the Zimbabwean government said it will be working with the Reserve Bank to recover ZETREF funds as well as all the other funds currently held up at Interfin, and Muza believes the performance of the facility can still be salvaged, seeing as the problem is not with ZETREF’s sub-borrowers, but with its LAA.
He adds that Interfin’s case is the result of the tight liquidity situation that has characterised the market since the adoption of a multi-currency regime. “Though something similar happened when Renaissance Merchant Bank was put under curatorship last year and a local hotel group was for some time unable to access a facility of over US$5mn from Afreximbank until March this year, I wouldn’t characterise it as endemic.
“There are other banks which are sound and are successfully playing the role of disbursing agents for ZETREF. However, the rising spectre of non-performing loans cannot be ignored and these were recently put at 9% by the African Development Bank.”