THE Reserve Bank of Zimbabwe this week punished 12 unnamed errant companies by banning them from participating on the forex auction system for indulging in arbitrage activities. Further to that the Bank’s Exchange Control Division and the Financial Intelligence Unit (FIU) ,is investigating 62 entities for malpractices on the forex auction.
The central bank promulgated the forex auction system in June last year in order to arrest the foreign currency shortages which has been rearing its ugly head on the market and stifling companies’ ability to import crucial raw materials.
Due to lack of forex through formal channels ,companies were buying hard currency on the parallel market at huge premiums driving northwards prices of goods and exerting huge inflationary pressures,
Since then, the apex bank US$640 million has been traded on the system which has relatively proffered price stabilisation and eased forex dearth.
But, some companies has been abusing the forex offered on the system resulting into an investigation by the FIU and resultant punishment of errant entities.
“Banks are further reminded to conduct full Know Your Customer (KYC) checks on their clients, and should not be complicit or connive in malpractices with their customers,” said RBZ governor John Mangudya in a statement.
“The Bank’s Exchange Control Division and the Financial Intelligence Unit (FIU) are continuously monitoring users of foreign exchange in the economy in order to deal with the malpractices. This exercise has resulted in 12 entities being banned from participating in the foreign exchange auction whilst 62 entities are under the FIU watch list. The banned entities’ respective bankers have been warned against breach of the foreign exchange auction rules.”
Mangudya said one of foreign exchange auction rules requires banks to ensure that applicants have enough local currency in their accounts to finance their bids but some banks were not paying particular attention to this requirement and have instead been extending overdraft facilities to ¬finance their customers’ bids.
“In line with the Bank’s monetary targeting framework designed to control the growth of money supply, funding of bids through overdrafts and advances is discouraged. Where absolutely necessary, bank lending should be limited to a maximum of 50% of a bid. Under these exceptional circumstances, bidders would be required to have in their accounts a minimum balance equivalent to 50% to cover their bids,” he said.
Mangudya said the success of the forex auction system has been achieved through market price discovery of the exchange rate and provision of a dependable foreign exchange market.
“Since the inception of the Foreign Exchange Auction System, there has been a significant increase in both the number of bids and the value thereof from just under 100 bids valued at US$11 million at the first auction to the current levels of over 500 bids valued at around US$40 million at both the Main and SME auctions. The top 100 beneficiaries of the Foreign Exchange Auction System over the past eight months, from 23 June 2020 to 28 February 2021, are listed hereunder for public information. It is also important to note that the same entities have been the major beneficiaries of the interbank foreign exchange market during the same period,” he said.
Top 20 forex beneficiaries from the auction system during the period June 23 2020 to February 27 ,2021 are Cangrow Trading (US$12 million),Stanbic nominees (US$11,2 million),Blue Ribbon Foods(US$10,4 million, Surface wilmar (US$9,17 million) ,National foods (US$8,3 million,Varun Beverages (US7,6million),Sable Chemicals Industry(US$7,5 million,Zimbabwe Brands(US$6,2 million),Willowton Group(US$5,67 million.and Windmill private limited (US$5,48 million)
Others are United Refineries (US$ 5,09 million) Neon shades Pvt ltd US$ 5,05 million ,Deindary limited US$4,88 million, Mega market US$4,49 million, Ferts Seed & Grain p/L (US$4,42 million),Natpak (US$4,3 million),Dairibord Zimbabwe US$3,8 million,Zimbabwe Silicates Holdings(US$3,7 million) ProDairy (US$3,57 million) and Telone (US$3,56million)