Banks defy RBZ directive

HARARE - Zimbabwe's financial institutions continue to defy the central bank’s directive to cap lending rates at 12,5 percent.

In January, the Reserve Bank of Zimbabwe (RBZ) signed a memorandum of understanding (MoU) with banks — through the Bankers Association of Zimbabwe (Baz) — with the institutions agreeing to reduce lending rates and pay interest on deposits among other reforms.

The MoU, which states that the 12,5 percent per annum lending rate should be above a bank’s weighted average cost of funding, is valid for a year with effect from February 1, 2013.

According to the RBZ, lending rates averaged 22 percent in 2012.

However, a snap survey by businessdaily revealed that lending rates charged by some commercial banks ranged from 13 percent to 35 percent while merchant banks were charging between 13 percent and 25 percent.

Before the MoU, it was generally agreed that the high cost of funding remained one of the biggest factors militating against economic and industrial recovery.

Early this year, deep-pocketed pension fund National Social Security Authority (Nssa) and insurance giant Old Mutual (OM) slashed the cost of funds loaned to banks from 10 percent to seven percent, a move expected to make the financial institutions start on-lending the money at lower rates.

Most banks obtain significant funds from Nssa and OM.

The continued high banks’ lending rate has prompted Finance minister Tendai Biti to take action against the institutions.

Recently, the Treasury chief warned banks against failure to comply with the MoU and threatened stern penalties against institutions in violation.

“We will be studying the situation carefully and if the situation is such that there is substantial non-compliance with the MoU then as the government we will simply convert the MoU into a statutory instrument,” said Biti.

 “This is not our intention, but we believe everyone should be bound by an agreement that he or she appends his or her signature on,” he said.

But Sijabuliso Biyam, Baz chief executive, argues the banks are complying with the RBZ’s directive and were conducting business within the confines of the MoU.

“It would be unfair to judge banks’ lending rates without first calculating the weighted average cost of funding,” he said.

Christopher Mugaga, an economist, said while the issue is not with the banks, the institutions had for long been getting money cheaply from depositors while lending it at high interest rates, thereby jeopardising the country’s economic growth.

“The problem is not with the banks, but has everything to do with the environment. It’s difficult for banks to operate in an environment where there are no credit lines and no lender of last resort,” he said, adding that Zimbabwe has to get its politics right first.

Mugaga said more measures are still required to address the funding and interest rate challenges facing the economy.

Standard Chartered Bank Zimbabwe (Standard Chartered) — which charges five percent establishment fees in addition to between 17 and 22 percent interest, and a 1,68 percent insurance fee — has indicated intentions to increase its lending rates by a further three percent.

Chris Jeremiah, Standard Chartered’s personal banking general manager, said the institution was increasing the lending rates due to “significant volatility in interest rates in Zimbabwe over the last few months which has resulted in an increase in our cost of funds”.

“Consequently, we have no option but to revise our Base Lending Rate upwards…effective from June 15, 2013,” he said. - John Kachembere

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