Competition in banking sector still low - BoZ
Competition in banking sector still low - BoZBy Kabanda Chulu in Kitwe
Sun 03 July 2011, 20:50 CAT
THE banking sector has remained fragmented with insufficient and distorted competition resulting in rigidity of its activities, says Bank of Zambia governor Caleb Fundanga.
And Dr Fundanga has expressed concern that the increase in financial institutions has not had a significant impact on promoting competition since most of the banks are too small.
During a business symposium for SMEs at the ongoing Zambia International Trade Fair, Dr Fundanga said competition was not strong enough to lead to a convergence of prices that would ensure that banks have more or less the same prices for their services and products affordable to most people.
“This can also explain why finance service providers are not revising their interest rates and charges in tandem with the movements in key macroeconomic indicators such as inflation,” Dr Fundanga said.
“Whereas BoZ is conscious to the fact that the financial institutions are in business and are therefore expected to make profits but there is need to make financial services more affordable in order to promote economic growth and reduce poverty levels in the country since low interest rates reduce the cost of doing business and encourage investments in key sectors of the economy.”
He said BoZ had recognised that competition was an essential element in the effective and efficient operation of a market economy.
“In this regard, the licensing regime encourages entry of players that will foster integrity, innovation and competition while deepening and widening the financial sector and we have a huge list of new applicants wishing to invest and open new banks in Zambia,” Dr Fundanga said.
“The presence of reputable financial intermediaries is expected to increase competition which in turn will lead to an improvement in the quality of domestic financial services and allocate efficiency of financial intermediation will eventually be translated into higher returns for domestic savings and greater efficiency in the pricing of credit and other risks and in the allocation of credit.”
Nevertheless, Dr Fundanga said the growth in the number of financial institutions has not had a significant impact on promoting competition since most banks are small.
“A few banks continue to enjoy an oligopolistic position and this in a way explains why some inefficiency remains in the provision of services,” said Dr Fundanga.
Labels: BANK OF ZAMBIA, CALEB FUNDANGA, COMPETITION, LENDING RATES
posted by MrK @ 3:35 PM
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