Zimbabwe: CABS Lending Below Bank Rate

17 September 2019

Financial services provider CABS says it has maintained its interest rates below the central bank's overnight window rate as the private sector may struggle to access new capital.

The banking institution also said the move to keep its interest rates "low" will contribute to on-going efforts to curb non-performing loans (NPLs).

In June this year, the Reserve Bank of Zimbabwe (RBZ) increased the overnight window rate -- the rate of interest, which a central bank charges on its loans and advances to commercial banks -- to 50 percent from 15 percent.

However, CABS managing director Simon Hammond, last week said his bank had taken a "measured approach" to setting interest rates for its clients.

"We have taken our NPLs levels down to 4 percent, which I think is reasonable in difficult economic times, and that is linked to some extent to the issue of interest rates.

"Normally, economic orthodoxy would suggest that we should be guided by the overnight rate from the central bank, but that would create an NPL problem.

"But we have taken a measured approach. We have two reviews of interest rates, but I don't think we have been as aggressive as some banks, we would obviously like to maintain our income levels but take our customers through that cycle, particularly when you have got long-term commitments like mortgages to pay," said Mr Hammond.

He said this just a day before the RBZ further hiked the interest rate on its overnight window to 70 percent per annum from 50 percent.

Some observers have raised concern that the spike in interest rates (or the RBZ's overnight window, at least) will result in loan book growth declining significantly as consumers and the productive sectors will not be able to service debt at current elevated interest rates as they are already operating in an already depressed economic environment.

There is also worry of a potential jump in NPLs, which the RBZ has been fighting for the past few years, as shown by the establishment of the Zimbabwe Asset Management Corporation (Zamco) in 2014.

The monetary and fiscal authorities have, however, maintained that increasing the central bank overnight window is just a temporary measure meant to deal decisively with inflation and speculative behaviour that had become rampant in the economy.

Meanwhile, in the half-year to June 30, 2018, CABS recorded a profit growth of 195 percent to $61,1 million, up from $20,7 million in the prior comparable period, on the back of growth in net interest income, foreign currency translation gains, and property fair value gains.

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