PRESIDENT Rupiah Banda has asked commercial banks to bring down loan interest rates saying harsh lending conditions are responsible for the poor loan recovery rates and are eroding confidence in the sector.

Speaking during the official launch of First National Bank (FNB) in Lusaka yesterday, Mr Banda said there was equally a risk of discouraging both savings and investments due to ironically low rates on deposits.

The president said there was need for the financial houses to bring down the high loan interest rates and other bank charges, which had made loan repayment exorbitant.

"The most affected clients are the micro, small and medium-sized enterprises. These businesses are important in growing our economy, as well as in providing employment to our people.

"Therefore, access to funds for small investment should not be at very high cost. The role of banks in an economy such as ours should, ultimately be to support the small businesses and not only finance big corporate businesses which already have access to other sources of finance," he said.

Mr Banda said the banks should encourage the people to increase on their productivity by being true partners.

He said the FNB was one of the five banks the Bank of Zambia had registered since 2008 and its entrance in the country showed the confidence the international investors had in Zambia.

"I have been informed that the bank has already employed 96 Zambians and will increase this number as the branches increase.

"It is my expectation that the bank will reach the unbanked urban and rural populations. The issue of access to finance for the majority of our people is a matter which my Government, through the financial sector development plan is giving very close attention," Mr Banda said.

He said, as the real economy continued to grow, it was important that it was supported by an efficient financial sector as increased economic activities demanded a wide-range of banking products and services.

Mr Banda hoped that the FNB would take up the challenge of enhancing efficiency in service delivery in the sector to bring down the cost of banking services.

He challenged banks, which had no branches in rural areas to extend their valuable services to all the provinces and provide the much-needed rural credit.

"This is because some of the priority sectors such as agriculture, tourism and small enterprises are located mostly in rural areas.

"I, similarly urge all commercial banks to move away from 'arm chair banking' to making credit available to deserving customers at affordable rates," he said.

Earlier, Finance Deputy Minister, Chileshe Kapwepwe said the financial sector in Zambia remained buoyant despite the global economic crisis and the coming of FNB to the country was a testimony to that.

FNB South Africa chief executive officer, Michael Jordaan echoed Ms Kapwepwe's sentiments saying that Zambia had remained an investor-friendly environment with low political risks.

"FNB believes that it can add value to the Zambian banking industry by bringing the best of our acquired skills and knowledge on the continent in terms of our innovative products, services and technology," Mr Jordaan said.