THE Bankers Association of Zimbabwe (BAZ) has encouraged the fiscal and monetary authorities to remain consistent in their policies in order to boost investor confidence and influence market sentiment.
The financial services sector in the country has been battling confidence issues due to decades of hyperinflation and policy inconsistencies, which have left account holders nursing wounds after losing their hard earned cash.
BAZ chief executive officer Fanwell Mutogo said frequent changes in fiscal and monetary policies created uncertainty for banks, making it challenging for them to develop long-term strategies.
“The effectiveness and credibility of fiscal and monetary policies can influence investor confidence and market sentiment,” Mutogo Employers Confederation of Zimbabwe business indaba held in Harare last week.
“Transparent and well-executed policies are likely to enhance trust and stability in the financial sector, attracting investment and promoting growth.
“Conversely, inconsistent or poorly communicated policies may lead to uncertainty and volatility in financial markets.”
He added that the effectiveness of fiscal and monetary policies on the banking sector hinged on their coherence and consistency.
Mutogo stressed that by promoting economic stability, fostering a predictable policy environment, and encouraging financial inclusion, policymakers can create a more favourable landscape for Zimbabwean banks to play their role in driving economic growth.
“Increased government spending on infrastructure or key industries can create loan demand from businesses in those sectors.
“Tax breaks for specific areas can further incentivise lending,” he said.
“This fosters economic activity and a thriving banking sector. Changes in tax policies (corporate tax, import duties) can affect business profitability.
“Higher taxes might lead to decreased loan applications or increased risk for banks due to potential repayment challenges.”
“Conversely, tax breaks for specific sectors can encourage lending to those areas.
“When the government borrows heavily to finance deficits, it competes with businesses for loanable funds from banks.
This can drive up interest rates, making borrowing more expensive for businesses and potentially reducing overall loan demand.”
Zimbabwe also has a history of high inflation and economic instability, which makes it difficult for banks to accurately assess risk and price loans effectively.
Mutongo said despite potential loan demand, a combination of factors like lack or inadequate long-term finance from international financiers, high-interest rates and collateral requirements can restrict access to credit for businesses, particularly small and medium enterprises.
He noted that businesses were looking at long term finance and long term funders but were struggling to access due to the country’s high risk and many other issues.