8 January 2013

Zimbabwe: Lending Rates Take Centre Stage

LENDING rates are likely to fall to 15 percent as negotiations between banks and the Reserve Bank of Zimbabwe near conclusion, banking sources have said. The banks are charging lending rates of as high as 25 percent per annum, which economic analysts say has slowed down Zimbabwe's economic recovery.

"They (banks and RBZ) are likely to settle at 15 percent - 10 percent plus an average 5 percent being the cost of money being obtained by the banks," said one source.

Bankers' Association of Zimbabwe president Mr George Guvamatanga yesterday would only say "the matter is still under discussion and we hope that it will be finalised soon".

The central bank and the BAZ were due to meet yesterday.

The two bodies have already come up with a draft framework which, according to reports, seeks to ensure "that bank charges and interest rates promote financial inclusion, stability and economic growth".

The draft is yet to be ratified.

Under the terms of the draft framework, banks will also be compelled to pay an interest rate of at least 4 percent on term deposits of over US$1 000.

They would also be obliged to design accounts with lower charges to cater for poorer customers.

Finance Minister Tendai Biti proposed in his

2013 National Budget last November that deposits of less than US$800 should be exempted from bank charges.

Last week, the National Social Security Authority and Old Mutual reduced the cost of money lent to banks from 10 percent to 7 percent, with banks now on-lending that money at a maximum interest rate of 10 percent per annum.

Before the reduction, banks were on-lending the money at a maximum rate of 15 percent per annum.

Many banks obtain significant funds from the two institutions.

Minister Biti said in November last year he had negotiated with NSSA and Old Mutual to reduce the cost of funds lent to banks so that they could also cut their lending rates.

The minister said 40 percent of internally generated money comes from Old Mutual and NSSA and the banks should therefore not on-lend at a rate exceeding 10 percent.

But bankers said while the rates had been reduced, the money might be very difficult to get.

Economic analyst Mr Rongai Chizema said the banks had for long been getting money cheaply from depositors while lending it out at high interest rates.

"Banks have always made money from mopping deposits cheaply at zero cost, and lending these at very high interest rates.

"These interest rates have had no bearing on the zero, or rather negligible cost of mobilising deposits, and hence they were making quite a good return beyond reasonable levels on this idle capital," he said.

"Both the minister and the Governor of the RBZ, Dr (Gideon) Gono, have employed moral suasion for the past few years - it seems to have failed.

"Under the circumstances, the approach taken by the (Finance) Minister (Biti) is welcome to depositors.

"If you look at the income banks have been making in recent times, most of it has been from non-interest income streams, such as fees and charges."

Mr Chizema urged banks to be innovative and grow their income streams by employing product innovative platforms.

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