Saturday, December 15, 2012

Banks say they recognise need to reduce lending rates

Banks say they recognise need to reduce lending rates
By Henry Sinyangwe
Mon 10 Dec. 2012, 08:50 CAT

COMMERCIAL banks in the country say they recognise the need to reduce lending rates following government's introduction of the monetary policy rate.
Vice-President Guy Scott recently during the Zambia International Business Advisory Council in Lusaka expressed worry at the high lending rates being charged by commercial banks despite the introduction of a policy rate being implemented by the central bank.

At inception, the Bank of Zambia set the policy rate at nine per cent, but has since been adjusted to 9.25 per cent.

But Bankers Association of Zambia chief executive officer David Chewe said there is a recognition that lending rates should be brought down considering the introduction of the transparent mechanism such as the monetary policy rate.
He attributed the prevalent high interest rates to the non-transparent mechanisms in the past years.

"We need interest rates to go down, but we are coming from a background where there was no transparent mechanism and now with the introduction of a transparent mechanism, we hope that we can quickly see that realignment happening and see the interest rates lowered," Chewe said.

He claimed that the policy adjustments that the Bank of Zambia has implemented had also resulted into the lending rates reducing.

"…We have started a journey where we are now seeing a realignment of the various imperfections that existed in the past to an extent that we are trying to look at what has transpired in the industry and relate it to the budget. What we have highlighted is that the policy adjustments that the Bank of Zambia has implemented have resulted into the lending rates reducing and we have been able to see the lending rates reducing from about 24.6 per cent to about 18," Chewe claimed.

He said the association had been negotiating with various stakeholders and the banks to ensure that the corporate tax was also reduced.

"As a result of the collaboration that we had with the BoZ and the Ministry of Finance, we had the corporate tax rate reduced from 40 to 35 per cent; that was because of engagement and discussion with an understanding that the corporate tax rate was going to result in the banks adjusting their lending rates," Chewe said.

"There was the discussion of measures relating to the statutory reserve ratio which was part of the initial pointers that we had identified and subsequently, there was a policy rate that was introduced and the policy rate was meant to be a more transparent mechanism for transmitting monetary policy."

He further claimed that the average lending rate had reduced to 16 per cent, which was a clear indication that rates have been going down.

"For the small to medium enterprises, the lending rates have also reduced, they range between 14 and 21 per cent in banks that have participated in submitting the data that we submit to government," said Chewe.

"On the deposit side, when you look at the aggregate deposit that the banks have been able to mobilise, the total picture is that 80 per cent of the deposits are in current account meaning that the owner of the account would want to have access to money and that would not warrant any interest."

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