Banks experience capital flight

Zimbabwe’s banks, which for years have been the investor’s first choice as they offered annual gains of up to 65 percent in interest, are now facing a massive capital flight to the equity market after cheaper funds made available by the Central Bank sharply brought down interest rates, PANA reported on Tuesday.

The Reserve Bank off-loaded US $200 million on the money market three weeks ago for on-lending to the productive sectors at concessionary interest rates, as part of a new government initiative to rejuvenate the economy. The move, widely welcomed by the country’s business community, has forced interest rates on bank loans to tumble from as high as 70 percent to around 15 percent, setting off a massive capital flight to the equity market which had remained in the doldrums for years as investors focused attention on the money market.

The main beneficiary of the money market’s woes has been its chief rival, the equity market - the Zimbabwe Stock Exchange (ZSE). It has captured the bulk of the investors and funds withdrawing from the money market, jolting it into strong vibrancy after years of playing second fiddle to the money market dominated by commercial banks. “There is a strong appetite for stocks, and this seems to be driven by institutional investors pulling out of the money market,” said a ZSE official.