20 February 2013

Zimbabwe: Lending Rates Still Too High - AFDP

THE African Development Bank says the range in lending rates quoted by banks remain wide across the sector and more measures are required to address funding and interest rate challenges facing the economy. AfDB contends that nominal lending rates quoted by individual commercial banks ranging from 6 percent to 35 percent and 13 percent to 25 percent for merchant banks, remain too wide across banks.

In a bid to reduce lending rates the Reserve Bank of Zimbabwe engaged banking institutions to whittle them to a maximum 12,5 percent per annum above a bank's weighted average cost of funding. RBZ said lending rates averaged 22 percent last year.

"While this is commendable, the challenge is that only a small amount (40 percent) of funds is mobilised internally, which means the overall impact on lending rates may be small. Thus, more measures are still required to address the funding and interest rate challenges facing the economy," AfDB said in its monthly economic review.

Before the central bank fashioned an understanding, in principle, it was generally agreed that the cost of funding remained one of the biggest factors militating against economic and industrial recovery.

The RBZ's MoU with banks was with effect from February 1 2013 for one year, renewable by mutual consent unless terminated by parties and is not applicable in retrospect.

It came following Finance Minister Tendai Biti's decision to cap bank fees and lending or interest rates, which he had announced when he presented the 2013 National Budget statement last November.

And last week Minister Biti threatened to codify the MoU into law if banking institutions failed to ensure that the agreement is fully implemented. The first review of the MoU implementation falls due in six months.

In terms of the MoU, banks are now required in respect of a 14-day call or fixed deposit account, to pay interest accruing to an account on agreed contractual terms provided that such interest may be reduced.

Any term deposit by individual customers of US$1 000 and above held over a period of at least 30 days shall attract an interest rate of at least 4 percent per annum provided that such a deposit has been placed in a term deposit account in accordance with the terms and conditions.

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