Friday, April 23, 2010

Non-utilisation of loan facilities by companies worries Fundanga

Non-utilisation of loan facilities by companies worries Fundanga
By Fridah Zinyama
Thu 22 Apr. 2010, 02:00 CAT

BANK of Zambia (BoZ) governor Dr Caleb Fundanga has revealed that no Zambian company has so far accessed the US$80 million that was released under the Export Fund of Zambia in 2008.

And Zambia Association of Manufacturers (ZAM) president Chance Kabaghe complained that there was no long-term financing readily available on the Zambian market and bank interest rates were very high.

The US$80 million facility which was signed in 2008 through the PTA and Afreximbank was meant to help export-oriented companies become competitive through value addition to their products.

Responding to a question by Kabaghe on whether BoZ would help to recapitalise the Development Bank of Zambia (DBZ) to help the business community meet its long-term financing needs during the ZAM’s annual general meeting last week, Dr Fundanga observed that very few Zambian companies were accessing long-term loans from international financial institutions, a situation which made expansion very difficult.

“I am one of the directors on Afreximbank and I find it embarrassing that no Zambian company has tried to access these funds,” he said adding, “someone has availed these funds but no one was making an effort to access some of the money.”

Dr Fundanga said no one would force-feed any Zambian company to access these funds and companies, which were serious were applying for the money to grow their businesses.

“Funds are available... go out and borrow because there are a lot of facilities available which companies can access,” he said.

Dr Fundanga said the government through BoZ had no intention of recapitalising DBZ, though it appreciated the bank’s work.

“For one, manufacturers can use the stock market to raise long-term financing for projects which cannot be financed by local commercial banks,” he said. “There are other sources of financing which can be accessed by the business community like the PTA Bank and Afrexim Bank.”

Dr Fundanga explained that being one of the directors on Afrexim Bank, which has a membership from most African countries including Zambia, it was saddening to note that very few Zambian companies ever applied for financing from the bank.

“There are very few Zambian companies that explore other sources of financing. Other companies in countries like Zimbabwe, South Africa, Kenya, Tanzania, Senegal and Egypt are getting financing from these banks at very affordable rates,” Dr Fundanga said.

“All you have to do is put your businesses in order and talk to experts who can advise you on meeting the requirements set by these banks.”

Dr Fundanga said high interest rates posed a great challenge for the growth of the private sector in the country.

“In 2009, when the country was suffering from the effects of the global financial crisis, banks preferred to lend to government because of the lower risk involved when dealing with government,” he said.

“Previously, commercial banks had been lending to the private sector that started defaulting with the onset of the financial crisis.”

However, Dr Fundanga said commercial banks might be forced to start dealing with the private sector because the government securities were yielding low rates.

“There has been a reduction in yield rates in government securities from as high as 14 per cent to two per cent,” he said, adding that “the returns were getting so low that banks will be forced to lend to the private sector.”

Dr Fundanga said the market fundamentals were pointing to the fact that interest rates should be reducing.

“The coming of more banks on the market will bring competition in that banks will be outdoing each other to come up with products to offer to their customers,” he said.

“At the moment there are 17 banks, with another one to open soon called International Commercial Bank of Malaysia.”

Dr Fundanga said things could get better for the private sector with the coming on board of Islamic banking.

“We are still looking at policy for the same,” Dr Fundanga said. “And I believe that Islamic banking will create a lot of challenges for the current banking market since it does not charge interest rates on the finances it avails to business houses.”

Earlier, Kabaghe complained that Zambia currently had high interest rates, which made it difficult for the private sector to access funds for expansion projects.

“The 30 per cent interest rates are very worrying as they are affecting the growth of the manufacturing sector,” he said. “When we deposit, we are only given three per cent interest for the use of our money....something is wrong with these interest rates.”

Kabaghe said at the moment commercial banks in the country were only availing short-term financing, which was not appropriate for growing companies.

“This is why, we would like to find out whether the Bank of Zambia has any plans to recapitalise DBZ, which is a longterm provider of finances,” said Kabaghe.

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