LOCAL banks have agreed to lower their interest rates, which currently go as high as 30 percent, with effect from October 1 in terms of guidelines agreed with the central bank, Bank chief John Mangudya announced on Wednesday.
The guidelines, revealed in a monetary policy statement issued on Wednesday, will apply on existing and future lending, Mangudya said.
“In view of high interest rates currently obtaining in the economy, there is scope for reduction to ensure that lending rates are supportive of economic recovery,” the central bank governor said in his statement.
“Within the broader policy to streamline costs of doing business and stimulate economic activity through affordable credit facilities in the domestic banking system, the following interest rate guidelines…have been agreed between the Bankers Association of Zimbabwe (BAZ) and the Reserve Bank.”
In terms of the interest rate framework, lending to productive sectors would range from 6 percent to 18 percent per annum, depending on the borrower’s risk profile.
Housing finance would attract rates ranging from 8 percent to 16 percent per annum, while rates between 10 percent and 18 percent would apply to consumptive lending.
Defaulting borrowers would be liable to a penalty rate of 3-8 percent above the relevant lending rate, the central bank statement said.
“The downward review in bank charges and interest rates are envisaged to achieve the key objectives of stimulating aggregate demand, promote the resuscitation of industry, improve the cost of doing business and support sustained economic growth and development and thereby going beyond stabilization,” Mangudya said.
“The agreed interest rate guidelines should also act as an incentive for borrowers to timely service their loans, improve their risk rating and access cheaper financing from banks.
Overall, this interest rate structure is expected to benefit both banks and the banking public.”
Total banking sector deposits increased by 14.2 percent from $4.9 billion on 30 June 2014 to $5.6 billion as at 30 June 2015. Short-term demand deposits continue to dominate, making up 55 percent of the total.
Total banking sector loans and advances edged up from $3.8 billion as at 30 June 2014 to $4 billion as at 30 June 2015, translating to a 71.4 percent loan-to-deposit ratio.Advertisement
The banking sector’s lending remains largely skewed towards individuals, who hog 26 percent of total loans, followed by services (19 percent), agriculture (17 percent), manufacturing (11 percent), financial firms (9 percent), distribution (8 percent), mining (5 percent), construction (3 percent), transport and communication at two percent each.
Mangudya observed that depressed lending to capital intensive sectors such as construction, communication, mining and the manufacturing sector reflects the limited capacity of banking institutions to provide long-term funding, which the sectors typically require, as well as the short term nature of deposits.
The banking sector’s aggregate ratio of non-performing loans to total loans improved from a peak of 20.45 percent in June 2014 to 14.52 percent as at 30 June 2015, the central bank said.
The central bank’s special purpose vehicle created to mop up bad loans from the banking system, the Zimbabwe Asset Management Company (ZAMCO) has so far bought up $157 million of non-performing loans and will, by the third quarter of 2015 have taken over the debt of four distressed companies amounting to $58 million, Mangudya said.
As it bids to reduce credit risk in the economy, the central bank announced it had also created a credit registry and a credit reference system (CRS) unit within its bank supervision division.
“The credit registry will promote efficient, timely and accurate credit information sharing, thereby enhancing credit risk management, governance systems and fostering credit discipline in the market,” Mangudya said.
“The implementation of the credit reference system is expected to rid the market of serial defaulters, deal with the generally lax credit culture which is currently rampant in the country and reduce over indebtedness.”
The CRS will collect credit information from all banking institutions and microfinance institutions and serve as a databank for licensed private credit reference bureaus.