27 December 2012

Zambia: BoZ Hailed Over Rates Directive

THE manufacturing sector and consumers have commended the Bank of Zambia (BoZ) for directing commercial banks not to exceed 18.25 per cent interest rates it was charging borrowers saying the move will affect the benefits aimed at stimulating the country's economic growth.

But Zambia Chamber of Small and Medium Business Association (ZCSMBA) chief executive officer Patience Sakuringwa said although the move taken by BOZ was good, the fact was that interest rates still remained comparatively high.

Zambia Association of Manufacturers (ZAM) chief executive officer Roserta Mwape said in an interview yesterday that the reduction of interest rates was a positive move which would bring benefits to the manufacturing sector.

Ms Mwape said the central bank's directives to commercial banks to reduce interest rates would also bring benefits to the financial sector which would improve its liquidity.

"The reduction of interest rates on borrowing will help the banks to improve their cash flows which would end up being lent out to their customers," she said.

Ms Mwape expressed optimism that the move taken by BOZ would help address the problem of lack of access to long term financing which was one of the critical issues which was being faced by the local manufacturing sector.

"The banks have over the past years been offering short term loans denying the manufacturing sector long-term loans which are the major sources of the much needed capital.

"As a result of the measures which the central bank has put in place we are hopeful that commercial banks will use the increase in liquidity to issue long term loans which will bring a lot of benefits to the small and medium industries and the manufacturing sector," Ms Mwapa said.

The Zambia Consumer Association Association (ZACA) executive secretary Muyunda Ililonga said the effecting of the maximum interest rates on lending rates by the central bank would build consumer confidence in the financial sector.

Mr Ililonga said the move taken by the central bank would help both the consumer and business sector to plan adquately prior to borrowing because they would have an idea of the rates which the banks was charging its clients.

Ms Sakuringwa said the small and medium business sector was still facing the challenges caused by high interest rates on borrowing.

"You will note that currently, this percentage is more or less the average that the commercial banks are charging, the highest being around 21 per cent and the lowest 15.5 per cent," she said.

Ms Sakuringwa said most institutions in the country particularly after the change of Government in September of 2011, headed to banks after they slightly reduced their base lending rates in November 2011, the lowest reduction came to only 15.5 per cent.

The ZCSMBA chief executive officer said the base rates were still too high.

"What we aspire for are single digit lending rates, these will be meaningful," Ms Sakuringwa said.

The central bank has issued directives to all commercial banks to have a maximum effective annual lending interest rate charge on any borrower not to exceed 18.25 per cent which would be effected from January 2, 2013.

According to BOZ the cap was arrived at by adding a factor of nine per cent to the Policy Rate which currently stands at 9.25 per cent.

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