17 December 2013

Mozambique: Banks Criticised Over High Interest Rates

Maputo — Maputo, 17 Dec (AIM) - The governor of the Bank of Mozambique, Ernesto Gove, on Monday criticized the commercial banks for failing to follow the lead of the central bank in reducing their interest rates.

At his end of year speech on the country's financial situation, Gove noted that low inflation plus the stability of the Mozambican currency, the metical, had allowed the Bank of Mozambique to continue a policy of reducing interest rates which it had begun in mid-2011.

In 2013, the Bank's Monetary Policy Committee had cut three times the Standing Lending Facility (the interest rate paid by the commercial banks to the central bank for money borrowed on the Interbank Money Market), and it now stands at 8.25 per cent.

But the commercial banks, Gove said, reacted timidly. The cuts in the interest rates they charged their clients were not proportional to the cuts made by the central bank, and came after considerable delays.

This led the central bank to conclude that the mechanisms whereby interest rate changes are transmitted “continues to demand more thorough reflection”.

Gove admitted that there might be “obstacles that interfere with the fluidity of the transmission mechanism”, but he insisted that the central bank's strategic objective “is to promote a healthy and competitive financial sector with attractive interest rates, diversified financial services, and lower transaction costs”.

Thanks to macro-economic stability, up until October there was a growth in bank lending to private business of 23.4 per cent compared with the same period in 2012. “But we do not lose view of the fact that our small and medium companies continue to face various limitations in access to credit”, said Gove, “and so this year we have worked with various partners to promote lines of finance dedicated to this segment”.

At the same time, the Bank had worked with the CTA (Confederation of Mozambican Business Associations) “in order to reduce asymmetries such as the lack of information and weaknesses in the organisation of the accounts of small and medium companies, which leads the banking system to regard their activities as high risk”.

Gove rejected the idea that the commercial banks are systematically cooperating with organised crime, by providing information to kidnap gangs about the accounts of potential victims.

He admitted that the wave of kidnappings in Mozambican cities over the past two years “has generated the perception that banks were not operating in accordance with good practices and banking ethics”.

But the Bank of Mozambique's own investigations “allowed us to conclude that the banks are observing the duty of collaborating with the police in denouncing unacceptable practices and in providing information which assists in criminal investigation”.

Gove was certain that no bank has tolerated “attitudes contrary to good practices and to correct professional and ethical conduct, which is the culture of our financial industry”.

He admitted the possibility of breaches of banking secrecy by individuals, but stressed “just because one member of a family behaves badly, we shouldn't write off the entire family”.

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