Central bank must stick to its guns

HARARE - Zimbabwe's banking public welcomed central bank governor John Mangudya’s recent capping of lending rates at 12 percent given that Zimbabwe’s lending interest rates are still considered the region’s highest after peaking at an alarming 35 percent.

In his 2017 Monetary Policy Statement, the central bank governor put a cap on lending rates, bringing much-needed relief to Zimbabwean depositors presently battling an intensifying banknote scarcity.

Banks responded by issuing a thinly-veiled threat to shut their lending taps, with Bankers Association of Zimbabwe president Charity Jinya claiming it was inevitable for banks to cut lending on the back of the lowered interests.

We are also reliably informed banks are rallying their legal departments to contest the decision so that the new rates do not apply to loans issued before April 1, 2016.

While Mangudya said the capping directive will be implemented in retrospect, calling on all banks to comply, a showdown is looming.

Most local banks have been systematically cutting their lending to protect against ballooning Non-Performing Loans (NPLs).

In 2016, total loans went down to $3,6 billion from $3,9 billion prior year and this figure could recede further if Jinya’s threats are anything to go by.

As it where, the distribution of credit remained largely unchanged in 2016 with lending to individuals, services and agricultural sectors dominating the banking sector loan portfolio. Individual advances, mostly consumptive, made up the biggest chunk of 2016 advances at 28,7 percent of total advances.

It is our firm belief that — while the new rates regime is very welcome — banks are likely to drastically reduce their lending, affecting their biggest borrowers, individuals.

This development will see ordinary Zimbabweans suffer because of an otherwise noble directive. Given prevailing economic conditions, lower interest rates are needed to stimulate demand and spur economic growth. The benefits of lower interest rates cannot be overemphasised as exorbitant interest rates on loans that firms would have borrowed from banks led to the closure of a majority of companies .

Following the adoption of a multi-currency system in February 2009, most companies have failed to service their loans, forcing creditors to take the litigation route. Government’s creation of a special purpose vehicle to house NPLs amounts to an admission that the country’s interest rates are too high.

However, we expect the governor to stick to his guns, as he has always done, with the same firmness he used when he introduced the bond notes.

Therefore, we appeal to the RBZ to keep an eye on the banks to ensure responsible borrowers continue to access cash at the newly-announced rates.

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