Banks heed RBZ call, adjust interest rates

RBZ Governor John Mangudya

RBZ Governor John Mangudya

Oliver Kazunga, Senior Business Reporter
BANKS have started reducing lending rates in line with the Reserve Bank of Zimbabwe (RBZ) directive meant to boost credit availability for the productive sectors of the economy.

In the 2017 monetary policy statement, RBZ Governor Dr John Mangudya directed the banking sector to reduce their lending rates from 18 percent to 12 percent per annum effective April 1, 2017.

“With effect from 1 April 2017, all banking institutions are required to ensure that lending interest rates should not exceed 12 percent per annum and that bank charges that include application fees, facility fees and administration fee, should not exceed three percent,” said Dr Mangudya in his 2017 Monetary Policy Statement released in February.

A snap survey carried by Business Chronicle in Bulawayo yesterday showed lending rates for personal and business loans at some banking institutions ranged between 12 and 18 percent.

“We are issuing business loans at 12 percent and 18 percent for personal loans,” an official from one of the banks said.

An official at another commercial bank said they were issuing both personal and business loans at 15.8 percent. Some said they were not giving either personal or business loans while some banks declined to disclose their rates.

Dr Mangudya said the new interest rate regime would apply in retrospect, giving a reprieve to owing businesses and individuals. Prior to the announcement, lending rates were determined by a framework allowing banks to charge between six and 18 percent, depending on the client’s risk profile.

For a long time the cost of finance has been prohibitively high in Zimbabwe resulting in suppressed economic growth as vital economic sectors were starved of capital while those who borrowed suffocated under arrears and lost valuable assets through litigation.

Due to lack of access to cheap funding, the local industry has in the past struggled to secure working capital to boost production.

In pronouncing the directive Dr Mangudya said affordable credit was critical in improving output and should be availed to large and small-scale businesses as well as individuals to enable them to invest in productive sectors that increase jobs, exports and reduce poverty.

Since dollarisation in 2009 the local manufacturing sector has struggled to improve capacity utilisation to competitive levels also because of cheap imports, low consumer demand, high production costs and lack of long-term funding.

According to the Confederation of Zimbabwe Industries manufacturing sector survey report released last year, capacity utilisation stood at 47,4 percent from 34 percent in 2015.

In the 2017 monetary policy statement, Dr Mangudya indicated that credit growth in the banking sector remained subdued in 2016. He said banking sector loans and advances marginally increased from $3.65 billion reported as at 30 September 2016 to $3.69 billion as at 31 December 2016.

“Banking sector funding to the productive sectors of the economy, such as mining and manufacturing continues to be constrained by the short – term liability structures of banking institutions’ balance sheets.

“The sectorial distribution of credit underscores the need for banking institutions to continue to re-orient their lending towards productive and export sectors of the economy,” said Dr Mangudya.

Bankers Association of Zimbabwe president Mrs Charity Jinya has said banks will comply with the directive but expressed reservations over banks’ ability to protect depositors’ funds.

@okazunga

Article Source: The Chronicle