Thursday, December 27, 2007

Kanyama bemoans banks' high interest rates

Kanyama bemoans banks' high interest rates
By Fridah Zinyama
Thursday December 27, 2007 [03:00]

Lusaka economist Chibamba Kanyama has accused commercial banks in the country of charging high interest rates despite the government’s measures to increase their cash flows. According to Kanyama who is also Economics Association of Zambia national secretary, it was sad that despite several government pleas and pragmatic policy steps to have commercial banks reduce interest rates, most commercial banks in Zambia still charge exorbitant interest rates.

“As we conclude the year, I wish to point out that lending rates are pegged at over 30 per cent for most banks, a move that is highly destructive for private sector investment,” he noted.

Kanyama wondered which investment in Zambia could yield a net return of 2.5 per cent per month for it to service the loan and still remain with enough funds to re-invest.

“No wonder the private sector is constantly hooked to commercial borrowing because all gains end up with the banks,” he said.

Kanyama said the private sector in the country had been told that base rates were below 20 per cent on average and yet the hidden charges still brought the real interest rates paid to as high as 30 per cent.

“The banks have recently announced that base rates have been reduced in the country through the media and I am sure such statements are meant to hoodwink the government into believing commercial banks have responded to its policy,” he charged.

“The spread between the deposit rate and lending rate is widening every month, which is in deep contrast to policy measures instituted by the government and the Bank of Zambia.”

Kanyama said just recently, the Bank of Zambia reduced the statutory reserve ratios with commercial banks and the nation expected that with the increase in bank cash reserves, clients would witness a corresponding reduction in interest rates but this was not the case.

“The government has gone further to issue a long-dated bond to lock in interest rates within a certain margin but banks have not responded positively,” he further charged.

Kanyama said banks did not realise that their stand to maintain interest rates at such high levels had marginalised potential Zambian investors who seek to borrow.

"Only a few selected clients access these funds and at rates much lower than what is available to everyone,” he said.

Kanyama wondered whether Zambia’s economy would ever grow with such a small number of players participating in the economy.

“We certainly do not expect economic expansion if banks lack the necessary creativity and innovation in an economy undergoing economic change,” he said.

Kanyama said banks in Zambia have not been pro-active and needed to be taught a lesson.

“A lot of people who can positively participate in the economy have suffered and we cannot continue to have such a situation in the country,” said Kanyama.

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