Banks being ‘coerced’ into buying Govt debt

Posted by on Friday, November 9, 2012 in Banks, Zimbabwe politics | 7 comments

Economist Tony Hawkins

By Alex Bell
09 November 2012

Threats to commercial banks to either agree to buy Treasury bills or face being forced to do so, are being criticised as unwelcome deliberate coercion by the government.

The government has re-launched its Treasury bill market, where it auctions Central Bank ‘securities’ to commercial banks in return for a loan to finance government expenditure. October saw the first such Treasury bill market being launched since the local currency was dollarised.

But there has been reluctance by commercial banking groups to pay out these loans at the price the government is asking. Economist Tony Hawkins explained that the argument at the moment is about the cost of money. He said: “The banks are reluctant to lend to government at the price government wants which is at interest rate of 4% and less, and the banks are saying no, they want 8 or 9%.”

Finance Minister Tendai Biti and Central Bank Governor Gideon Gono have both warned the banks that they might be forced into accepting the arrangement if a compromise is not reached. Hawkins said this is “basically coercion.”

“The government is basically forcing the banks rather than letting the banks reach a voluntary arrangement. They (government) is saying: ‘If you don’t lend voluntarily we’ll make it compulsory,” Hawkins explained.

He said he hopes some kind of compromise can be reached because forcing the banks to buy in when they are reluctant could spell bad news for Zimbabwe’s still battered economy.

“That would take us back to where the trouble started when banks were forced to hold government securities that turned out to be worthless,” Hawkins said.

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  • wilbert_mukori

    The last thing Zimbabwe need is going back to the dark years of running inflation. The sad reality is the Zimbabwe economy should have been firmly on its way to recovery if this GNU had tackled the problems of lawlessness and corruption head-on from the word go. The Banks are now being forced to pay for the GNU’s own failures!

    • Chimbwido Warvet

      You know next to nothing about how governments all over the world operate. The practice of selling treasury bills to banks to finance government expenditure is as old as hills and there is nothing strange in doing this. These bankers are no different from the white commercial farmers who never wanted to part with the land when it was clear it was the most logical thing to do in a country where 99% of prime land in the country was owned and controlled by a mere 5000 white farmers in a country comprised of over 12 million black people. If banks do not comply with the government’s call, they will no one to blame if forced to do so. They are stupid to all have the mentality of being forced even on genuine requests by government. How ridiculous!

      • MoneyMan

        Erm, Warvet… you are 100% off the mark, your example with farms is totally and utterly irrelevant.

        Read the report, the banks are being effectively threatened that if they don’t buy treasury bills they may be FORCED to buy treasury bills… in effect forced to give Government money….

        These banks are private, and Government cannot force them to give loans to Government. The banks will choose where they want to invest.

        The practice of selling Treasury Bills does happen all over the world, and are bought by WILLING buyers. You clearly know next to nothing about banking ethics and practice here.

        IF Zimbabwe made itself a welcome place to invest, foreigners would pour money in, right now the policies that exist keep them well away….

        • Chimbwido Warvet

          You don’t know what you are talking about mate. The country can not be put to random because of banks that do not want to co-operate with government. Ian Smith used to finance wars that were unjustified and banks co-operated with him. So why can’t they help government now? Ok let us wait and see if government will just say it is fine and let them do as they please. This is an economic problem that needs the involvement of the banking sector to resolve the matter. It should not be treated as a political issue as it has turned out to be.

          • http://www.facebook.com/kmutsinze Kossam Mutsinze

            Of course, the commercial banks of Zimbabwe are reluctant to comply to a request by a government they have always distasted ever since Mugabe came to power when the same banks financed Ian Smith to wage an unjust war against the people of this country. But treasury bills are sold to banks to enable government to finance its expenditure. It is their money which is in government hands which is used by government to inject funds into the economy, funds which may have been lying idle in the country’s economy. Wilbert Mukori’s and MoneyMan assertions are absolutely wrong as treasury bills are used for a worthy cause. That is the rule of the game and if they do not want to co-operate with government, then I am afraid to say they should go elsewhere they can do as they please. The bottom line is the country can not be held at ransom by the actions of misguided banks.

          • MoneyMan

            I can’t agree in this context…. the banks are being effectively forced to invest at sub-optimal rates…. what that means is that they are investing your money into T-Bills at a loss even before yield… so the Zim Investors/savers are losing out here if the bank can’t sustain this mechanism… that is the problem here…. i.e. if it were a free market, the banks would be happy to do so if the return was favourable for their own investors…. it won’t be here, surely you can see that.

            In Principle I do see benefit in TBills and would always support them to make the Zim economy succeed, these are safe investments, but in this case they would be loss-making… so why should the bankss be made to invest at a known loss?

          • Kossam Mutsinze

            My biggest problem is that each time I see the photograph of Tony Hawkins above, It reminds me of a man who has never repented and like Ian Smith has never been genuine when he talks about the economic problems of Zimbabwe. He has never been in support of anything done by this government since it came to power in 1980 and why should I trust him now? Anyway, the bottom line is for the commercial banks to negotiate in good faith with government if they consider there will be no reasonable return to their investment. Making noise to attract attention, does not help their cause. If anything it makes them appear stupid and foolish when one considers the assistance they gave to an illegal regime led by Ian Smith some years ago.