ZIMBABWE’S banking system has been overwhelmed by rocketing demand for United States dollars on the foreign currency auction system, the central bank said on Tuesday, as it moved to adjust bidding lead times.
Introduced in June 2020, the forex auction system, which had injected about US$2 billion into industries by August this year, has bolstered companies’ capacity to confront headwinds stemming out of depleted hard currency stocks in Zimbabwe, where greenbacks are easily accessible at extortionist black market rates.
The result has been big backlogs on allotted funds of up to US$200 million, according to industry estimates.
Bids have rocketed to 2 000 per week, according to the central bank, from about 100 per week when the auction system kicked off.
The Reserve Bank of Zimbabwe (RBZ) said it was important to give banks enough time to access bids before bringing them to the platform.
“The bank wishes to advise that with immediate effect, all bids for foreign exchange shall be submitted through bidders’ respective bankers at least four business days before the date of the auction,”
RBZ governor John Mangudya said in a statement yesterday.
“The bankers shall in turn submit the bids to the bank, the auction administrator, at least three business days before the date of the auction. There has been a significant increase in the number of bids being submitted through the auction system, averaging 2 000 per week, and thus the change in bid submission timelines will give banks ample time to carry out the necessary due diligence processes and assess their customers’ bids,”
Assessing the bids has become one of the most important things for the banking system, which faces penalties for submitting non-qualifying bids.
There have been reports linking major corporates to the fleecing of the meagre foreign exchange reserves, with the central bank exposing how exporters have been tendering fake bills of entry to the auction.
A recent central bank report outlined shocking details about how a system that was rolled out to ameliorate a dire forex crisis, has been manipulated to enrich big shots behind leading corporations at the expense of millions.
Eligible companies that have failed to access foreign currency have ended up scaling down or winding up operations.
Big exporters with easy access to the auction forex have been bidding on behalf of third parties to circumvent the system.
The RBZ said significant numbers of bids had been inflated, while the big exporters had been creating artificial demand on the auction system by dabbling in related party deals.
The high-level delinquency could explain why the under-fire forex auction system has struggled to fund allotted amounts, accumulating backlogs of up to two months.
However, the crisis confronting Zimbabwe is that it is severely under-equipped to track and crackdown on mega fraud, the RBZ says in its six-page document which reviews the auction system’s first year of operation.