Maravi

Investrust predicts fall in lending rates

Investrust predicts fall in lending rates
By Chiwoyu Sinyangwe
Tue 11 May 2010, 04:00 CAT

INVESTRUST Bank Plc sees lending rates by commercial banks in the country coming down this year, buoyed by projected low annual inflation rate and continued collapsing yields on government securities, deputy managing director Richard Phiri said last week.

And Phiri said Investrust Bank Plc believes the global economic crisis is not yet over and the bank will remain cautious in extending the lending line to the private sector.

In an interview last week, Phiri said the projected lower inflation rate in the country and increased competition among commercial banks in the country was expected to lower the cost of lending.

Phiri said the continued collapsing of yields in the government securities would also give commercial banks in the country enough room to reduce the cost of lending.

“I see lending rates reducing progressively during the year because of many factors. If you look at the yields on government securities, which at the moment, are as low as three per cent,” Phiri said.

“Obviously that means anyone looking at investing…the cost of deposits must also come down because when ‘I have a liability portfolio, I would like to look at alternative investment for my depositors. So, whatever returns I give which I realise that whatever other better returns than government securities, I must always monitor the fact that my depositors are happier lending to me than taking it to the Central Bank in government securities because government securities yields have come down substantially, and as banks, we are now able to reduce the rates that we are paying on the various investments.”

He said the reduced annual inflation rate would help the banks deal with wholesale lenders.

“And obviously, as they investments mature, we are renegotiating these rates downwards. So, overall, it will lead to a reduction in the cost of, particularly, wholesale deposits,” he said.

“This is what should help because once the average cost of funds go down, banks will have room to work on their margins and reduce the cost of lending rates. This year, I can see signs are already there…every bank is reducing the base lending rates. Of course, that is not the key determinant of effective rate of lending but I can see that there will be a gradual reduction towards the end of the year.”

Phiri said there was need for the government to maintain a lower annual inflation rate in the country through making the country consistently enjoy the positive Balance of Payment (BoP) position.

“I believe that Zambia should move towards achieving a positive BoP, that is only way we are going to reverse issues of inflation,” he said. “Until you achieve net exporter position, it will be very difficult to manage these variables.”

And Phiri said although Investrust Bank Plc sees 2009 as exciting for the growth, the bank will remain cautious as it believed the global economic crisis which ripped markets apart in 2008 and 2009 was not yet over.

“The economic crisis effects are still on the cards. We do not believe that the crisis is over completely,” Phiri said.

“We are still very careful but not risk-averse; otherwise we would not be making money…but we are very carefully selective on the risk that we put on our balance sheet as we are monitoring the trends both in the local and global market. But for us as a bank, 2010 looks quite exciting.”

Phiri explained that Investrust Bank Plc was not among the worst-hit banks by the secondary effects of the global economic crisis which hurt the country through reduced mining activities after international copper prices collapsed between 2008 and 2009.

Phiri said the recovery of the international copper prices was expected to positively impact the operations of Investrust Bank Plc.

“We took carefully calculated strategy in that we were not overly exposed to key sectors of the economy that were affected by global economic crisis, one of them, mining,” said Phiri.

“We didn’t have a significant exposure to the mining sector. So, we had a natural shock absorber…we had a very well balanced portfolio. Whilst the entire sector was affected by bad loans coming out of these particular sectors, ours was modest in the sense that our loan loss provision only increased from about K7 billion in 2008 to K9 billion in 2009…we had an increase of K2 billion. On percentage basis, our loan portfolio did not grow as we had envisaged because of the economic crisis.”

Phiri said due to the economic crisis, Investrust Bank Plc last year slowed down on lending to make sure that it was calculating and understanding the risk that it was taking.

“…The loan loss provision as a percentage of the loan portfolio increased from about seven to 13 per cent at the end of 2009,” said Phiri.

“It was reflective of the trends in the industry because industry ratios grew from about six per cent to 14 per cent at the end of 2009. We think that by and large, we managed our risks and we performed well despite the many shocks that were experienced in the industry world over.”

Labels: INVESTRUST BANK PLC, LENDING RATES, RICHARD PHIRI

posted by MrK @ 3:51 PM