BoZ under political pressure to lower lending rates - IMF
By Chiwoyu Sinyangwe
Tue 14 Jan. 2014, 14:00 CAT
THE Bank of Zambia has been under political pressure to lower lending rates and strengthen the kwacha, says IMF. And the kwacha is expected to maintain its current levels of K5.525 and K5.535 for bid with a slight slant towards strengthening.
The International Monetary Fund (IMF) said BoZ needed to allow more exchange rate flexibility as it continues to build up reserves in line with their medium-term target of four months of imports cover.
"Inflation has in recent months remained at around seven per cent, above the BoZ's end-2013 target of six per cent, reflecting the removal of fuel subsidies, and inflationary pressure is expected to rise due to the large civil servant wage increases and reduction of maize subsidies," the IMF stated in its latest assessment of the Zambian economy.
"Bank liquidity has been highly volatile. The BoZ has been under political pressure to lower lending rates and strengthen the kwacha."
The Bretton Woods Institution stated that although the kwacha had weakened considerably over the last 12 months, the local currency remained broadly in line with fundamentals.
"The BoZ has started building up reserves slowly as the kwacha had appreciated in recent months, after losing reserves rapidly early this year during a brief period of providing foreign exchange to finance oil imports," stated IMF.
"Given the economy's vulnerability to negative shocks and the current low level of reserves (an estimate of 2.3 months of imports for 2013), staff advised the BoZ to allow more exchange rate flexibility and to continue to build up reserves in line with their medium-term target of four months of imports, using reserves to offset temporary exchange rate movements, but not to resist sustained depreciation pressures when they exist."
And the IMF has opposed the capping of lending rates of non-banking financial institutions in Zambia.
"The IMF noted that international experience shows that lending rate ceilings - if they are binding - will distort credit allocation and restrict rather than enhance access to credit, particularly for SMEs," the IMF stated.
"Since the lending rate ceilings were introduced in January 2013, market interest rates as reflected in average Treasury Bill rates have increased more than two percentage points, while the ceilings have been increased only one half percentage point, making them increasingly binding."
In January 2013, BoZ announced its decision to limit interest rates micro-lenders can charge.
The Bank of Zambia capped micro-lenders' interest rates at 42 per cent after President Michael Sata complained that the high cost of borrowing in the country was stifling investment and job creation.
But the IMF stated that: "…to reduce interest rates, efforts should focus on reforms to enhance competition in the banking sector, and help SMEs develop credible business plans. If the authorities are determined to maintain the lending rate ceilings, at the very least, it will be important to adjust them in line with market rate increases. One way to achieve this would be to tie the ceiling to the average Treasury bill rate, rather than to the policy rate."
Labels: BOZ, IMF, LENDING RATES
Read more...
(MONITOR UG) Bank of Uganda cuts lending rate
By Martin Luther Oketch
Posted Wednesday, December 4 2013 at 00:00
Bank of Uganda has announced that it is
continuing with its accommodative monetary policy stance by reducing the
Central Bank Rate to
11.5 per cent for the month of December
from 12 per cent.
Briefing the press yesterday on the Central Bank Rate for the month of December, the Deputy Governor Bank of Uganda, Dr Louis Kasekende, said this is aimed at encouraging increased private investment in the economy.
Mr Kasekende said: “Real economic activity to show ed signs of recovery, part ly boosted by the accommodative monetary policy stance and public investment.”
Bank of Uganda explains that the accommodative monetary policy stance is also meant to lift Uganda’s economic growth, which has continued to be below the growth potential.
“Going forward, the growth will benefit from the private consumption, which is projected to rise as consumer and household credit extension gradually gain momentum,” Mr Kasekende.
Uganda’s GDP growth rate in 2013/14 is being projected at 6.2 per cent up from 5.8 per cent in 2012/13, and projected to pick up more speed in financial year 2014/15 to 6.5 per cent.
However, Mr Kasekende said economic growth remains below potential, with downside risks due to the uncertainties in the global economic environment.
The executive director of research, Dr Adam Mugume, said the outlook for Uganda’s economic growth is bright, and is being supported by increased foreign direct investment in the country mainly in the oil sector.
moketch@ug.nationmedia.com
Labels: BANKING, LENDING RATES, UGANDA
Read more...
(HERALD ZW) Govt to address liquidity: VP
October 25, 2013 Shingirai Huni Business
ZimTrade founding chairman Mr Cephas Msipa (left) receives a token of appreciation from Ms Arlene Wilson-Max, the managing director of Africa Exchange, who organised the ZimTrade Exporters Conference in Harare yesterday
Business Reporter
GOVERNMENT will explore all available avenues to secure affordable lines of credit to revive the manufacturing sector, Vice President Joice Mujuru said yesterday.
Addressing delegates who attended the ZimTrade Exporters’ Conference in Harare, VP Mujuru said Government was concerned with liquidity constraints affecting manufacturers, saying the economic policy to be launched soon would address some of the challenges. Zimbabwe’s manufacturing sector requires an estimated US$2 billion for recapitalisation.
“I would like to assure industry and commerce that Government is aware of the liquidity and supply side challenges that industry is facing,” said VP Mujuru.
“Consequently, Government, will, through the Zimbabwe Agenda for Sustainable Socio-Economic Transformation, explore all means to access affordable sources of funding to capacitate industry, to retool and to invest in new and relevant technology.”
Zim Asset is a medium-term economic blueprint that focuses on stimulating the economy. The blueprint targets an average 7,3 percent economic growth in the next five years. VP Mujuru said the poor performance of the manufacturing sector had seen the influx of mostly sub-standard imports, thus creating unfair competition for local producers.
Some of the factors that have constrained the industry include low aggregate demand due to low disposable incomes.
This has resulted in the manufacturing sector operating below capacity. Individual consumption is skewed towards basic commodities, thereby negatively affecting the rest of the industry outside the value chain of basic commodities.
Lack of demand has also been worsened by the fact that Government has little to spend. In a country with a Government with a limited purse, the economy goes into stagnation in the absence of a stimulus package.
Lack of long-term loans caused by transitory deposits has also made it difficult for industry to obtain long- term credit for retooling and working capital.
With Zimbabwe’s debt at close to US$11 billion, this on its own raises the country’s risk profile and makes it difficult for companies to source offshore finance.
In recent years, Zimbabwe’s economy has also suffered from stiff competition from foreign trade leading to a situation where the country is literally running trade deficits with most trading partners.
VP Mujuru expressed concern over the widening the trade deficit, saying urgent measures must be taken to improve the trade balance through robust export performance.
“As an economy, it is critical to restore the manufacturing sector’s contribution to export earnings from the current 16 percent to 50 percent by 2016,” said VP Mujuru. She urged companies to redefine their business models and be innovative to sustain competition.
Local producers were also urged to take advantage of bilateral regional and international trade and investment protocols signed by the Government to penetrate export markets.
VP Mujuru implored ZimTrade to embrace Information Communication Technology by promoting on-line trading, critical for facilitating imports from Zimbabwe.
Earlier, ZimTrade chief executive Mrs Sithembile Pi- lime told delegates that the trade and export promotion body would next year embark on road shows to promote Zimbabwe’s exports.
She said there was need to spread the market risk as Zimbabwe was exporting the bulk of its goods to South Africa. “If anything goes wrong with that market, we will be in trouble,” she said.
The conference was held under the theme “Value Chain Business Models: The Key to Export Competitiveness”.
Labels: CEPHAS MSIPA, JOICE MUJURU, LENDING RATES
Read more...
(HERALD ZW) US$720m agric facility: Farmers court banks
October 19, 2013 silence muchemwa Headlines, Top Stories
Elita Chikwati Agriculture Reporter—
FARMERS have urged banks to relax their lending conditions so that they can access the US$720 million agriculture support facility availed for the 2013/14 summer cropping season. Banks are insisting on collateral and are not accepting 99-year leases and offer letters as security, prompting farmers to negotiate a relaxation of stringent collateral requirements.
Farmer unions have encouraged members to form groups to unlock funding.
Zimbabwe Farmers Union vice president Mr Abdul Nyathi said they were engaging banks on the issue.
“We are currently engaging banks on how best we can access the funding. We have come up with a plan of group lending and some banks have accepted the arrangement.”
Mr Nyathi said conditions set by banks were so stringent that few farmers would access the cash.
“For the past years, banks have been availing funds for agricultural support with only few farmers getting the money because of these measures. We are negotiating with the banks so we agree on terms of lending,” he said.
Zimbabwe Commercial Farmers Union vice president Mr Johnson Mapira said most farmers did not have the required collateral security.
“Some farmers do not have houses which can be used as collateral. Banks should consider other forms of property as security,” he said.
Other farmers suggested that banks should consider livestock and farm machinery such as tractors and implements as collateral.
Deputy Minister of Agriculture, Mechanisation and Irrigation Development responsible for crops, mechanisation and irrigation, Cde David Marapira said he would meet banks to map the way forward.
“I am going to have a meeting with the banking sector soon to see how we can assist farmers this season. Few farmers are accessing money from banks since the majority cannot meet the banks’ requirements,” he said.
Cde Marapira advised farmers to switch to contract farming.
He said contract farming was more viable than having to wait for the loans which may be accessible late into the season.
“There is a statutory instrument that guides contract farming. The regulatory framework states what every part should do to ensure a win-win situation.
“Contract farming is viable if handled well without the issue of side marketing,” he said.
Labels: LENDING RATES, NEW FARMERS
Read more...
Govt puts foot down on lending rates
By Kabanda Chulu
Thu 15 Aug. 2013, 14:00 CAT
MICROFINANCE institutions have no choice but to reduce lending rates or sink, says finance minister Alexander Chikwanda. And Chikwanda says proceeds from the Eurobond are being used sensibly by the various institutions that received the funding.
Giving an update on the operations of the government owned micro bank that has started lending funds to civil servants at five per cent, Chikwanda said it was unacceptable for some microfinance institutions to exploit people.
"Our people have suffered a lot, and there have been situations where people are charged 50 per cent interest rate. This is unacceptable because it is exploitation and it should not continue," he said.
"Microfinance institutions will have to adjust lending rates downwards or sink because the micro bank is lending at five per cent and I am glad that they have started with rural areas where civil servants do not have access to funding."
The government has established its micro bank with a budgeted capital of K70 million although only K20 million has been disbursed so far. And Chikwanda dismissed assertions that proceeds from the Eurobond were been misapplied by recipients of the funds.
"It is true that some Eurobond money is in banks and when you talk about Zambia Railways, they negotiated for a good rate with some banks where the money is earning interest while they negotiate for contracts to rehabilitate the railway sector and there has been improvement in railway operations…trains are running and transit time has improved," said Chikwanda.
"Zesco also is putting that money to good use, as you know electricity is the driver of the economy and tenders for the Kafue Gorge are being evaluated and Development Bank of Zambia got US$ 20million which it is lending to SMEs and the Citizens Economic Empowerment Funds is also disbursing these funds so this money is being used sensibly."
Labels: ALEXANDER CHIKWANDA, EUROBOND, LENDING RATES
Read more...
Treasury warns banks over interest rates
13/03/2013 00:00:00
by Business Reporter
FINANCE Minister Tendai Biti has warned banks against failure to comply with an agreement reached between the central banke and the Bankers Association of Zimbabwe pegging interest rates and other charges for the sector.
Biti told journalists at his monthly state of the economy address that
financial institutions which continue to flout measures agreed in the Memorandum of Understanding (MoU) would face stern penalties from the government.
Under the MoU, banks are required to pay an interest of 4% for deposits of US$1000 maintained in the banks for over 30 days at the same time requiring the lending rates for banks to be subject to a maximum rate of not more than 12,5%.
“Reports we are getting from the Reserve Bank as of the 1st of February to now is that whilst the majority of the banks are in compliance with this directive, a few are not,” said Biti.
“So we will be studying the situation carefully and if the situation is such that they are substantial non-compliance with the MoU then as the government we will simply convert the MoU into a statutory instrument.
“This is not our intention but we believe everyone should be bound by an agreement that he or she appends his or her signature on.”
Central bank governor Gideon Gono also told a recent Confederation of Zimbabwe Industries (CZI) meeting that the government may be forced “to apply the stick” to ensure bankers comply with the continuity.
“We do not have an appetite to regulate interest rates; we have no appetite for that,” he said.
“Our wish is to see the banking sector regulate itself, but when we have interest rates going up as high as 60% bringing back the Zimbabwe-dollar era to the dollarized economy. We could not sit idle.”
Meanwhile, Biti blasted the skewed distribution of loans by the financial sector which is heavily inclined towards the non-productive and consumptive sectors of the economy.
“What is of concern however is the breakdown in the distribution of bank loans. Manufacturing is getting the bulk of the loans at 18%-this is fine because this is the productive sector, agriculture is getting 19%, distribution is getting 17%,” he said.
“But what is of concern to us as the government is that households which are in the non-productive sector are receiving 16% of total bank lending and this is not good.
“This means a lot of our productive income and resources, in this era of liquidity challenges, are going into flat screen televisions, zityes from Japan or other things. This is not good and I think these resources could be very well used in the productive sectors.”
Labels: LENDING RATES, TENDAI BITI
Read more...
Micro Finance Service Providers’s lending interest rate capped at 42% by Bank of Zambia
Time Posted: January 3, 2013 6:14 pm
The Bank of Zambia has with immediate effect introduced a cap on the effective annual lending interest rates that licensed non-bank financial institutions can charge their customers. This follows similar recent measures taken on commercial banks by the central bank.
Bank of Zambia Head of Public Relations Kanguya Mayondi in a statement released to media said that this measure has been necessitated on account of
the exorbitant interest rates that some non-bank financial institutions have continued to charge their customers.
Mr Mayondi explained that the capping of interest rates is aimed at making borrowing from non-bank financial institutions more affordable and equitable especially to the vulnerable micro-borrowers served by this sector.
He said that as a consequence, the maximum effective annual lending interest rate for non-bank financial institutions designated as microfinance service providers by the Bank of Zambia shall not exceed 42%.
He said that consequently, the Bank will designate non-bank financial institutions qualifying under this measure.
Mr Mayondi added that the maximum effective annual lending rate that will be charged by all other non-bank financial institutions will not exceed 30%.
He said that the interest caps of 42% and 30% have been arrived at by multiplying the commercial bank maximum effective annual lending interest rate, which currently stands at 18.25%, by factors of 2.302 and 1.644, respectively.
He stated that the Bank of Zambia will periodically revise the factors applicable to the non-bank financial institutions interest caps, in response to changes in economic fundamentals and the commercial bank rate.
Mr Mayondi further added that the conditions will apply to new loans written, while existing loans will be allowed to run their course on the current terms unless refinanced.
Meanwhile the Bank of Zambia has directed commercial banks and business entities to accept cheques issued prior to 1st January 2013 in the old currency.
Head of Public Relations Kanguya Mayondi said that the central bank has received reports that certain business entities and some commercial banks are turning away customers holding cheques prior to 1st January 2013 in the old currency.
Mr Mayondi said that cheques issued prior to 1st January 2013 in the old currency are just as good and should accordingly be accepted and processed.
He reminded all business entities and commercial banks that the cheques have a validity period of six months and therefore cannot be deemed to be invalid because of the currency rebasing exercise.
Mr Mayondi said that Cheques, therefore, should be accepted accordingly as they will be processed through the banking system by dividing the amounts by 1,000 to convert the values into the rebased currency.
He said that the Bank of Zambia, in this regard, wishes to remind all business entities and commercial banks that cheques issued prior to 1st January 2013 and in the old currency must be recognized and accepted as payment in order to ensure that well-meaning customers are not inconvenienced.
Labels: BANKING, KANGUYA MAYONDI, LENDING RATES, MICRO-FINANCE
Read more...
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."
Labels: BANKING, DAVID CHEWE, GUY SCOTT, INTEREST RATES, LENDING RATES
Read more...
‘Provide favourable financial terms for Zambians’
October 26, 2012 | Filed under: Business | Posted by: web editor
By TRYNESS MBALE
GOVERNMENT has called on the banking sector to provide favourable financial terms that can support Zambians seeking to invest in housing.
Vice president Guy Scott says there is need for banks in Zambia to provide long term financing to Zambians to empower them invest in housing.
In a statement, issued by KPR consulting on behalf of Pam Golding properties Zambia and Habitat for Humanity Zambia, Dr Scott said the financial sector needs to address the challenges that Zambians face in accessing finance for home ownership.
“The current financing framework in Zambia is not favourable, hence most citizens have challenges in borrowing money to invest in housing. Zambians are spending their salaries to pay rentals,” he said.
Dr Scott said that despite reforms within the banking sector aimed at easing access to finance, Zambians are still faced with the challenge of accommodation due unfavourable terms within the banking sector.
And Pam Golding Properties managing director Inutu Zaloumis said there is need to address Zambia’s housing deficit.
Ms Zaloumis said the country’s rapid urban population growth may result in overcrowding and social instability in communities.
She said there is need to scale up the existing housing stock and provide affordable housing to address the housing deficit the country is facing.
“Zambia’s growing population faces an enormous challenge that if not dealt with quickly, will adversely affect the livelihoods of communities countrywide. With the country’s population growing at an average of 2.8 percent per year, access to housing for citizens pose the challenge of overcrowding and social instability,” she said.
She said the biggest challenge to Zambia’s rapid urban population growth is the housing supply that is not meeting the current demand.
Meanwhile, over K90 million was raised during the Habitat for Humanity fundraising dinner which was held recently with proceeds targeted towards delivering housing services for 120 families and 100 new units for the vulnerable in society over a period of one year.
Habitat for Humanity Zambia National Director, Joseph Munsanje said his organisation is excited to partner with Pam Golding Properties to contribute towards the construction of 200,000 housing shortfall required in Zambia annually.
Labels: BANKING, GUY SCOTT, HOUSING, LENDING RATES
Read more...
Live within your means and save
By The Post
Mon 08 Oct. 2012, 13:20 CAT
An increasing number of Zambians are living beyond their means, their earnings.
And today, it has become very easy for one to live beyond their means because credit has increased. There are so many micro-financing companies lending money to individuals. And there are also many business enterprises that are advancing goods and services to individuals on credit. Even normal commercial banks are today lending out money to individuals so easily for them to buy cars, houses, wedding dresses and so on and so forth.
It is very dangerous for one to live beyond one's means because this leads to so many temptations and opens a person to wrongdoing.
Many Zambians are today in debt everywhere. And here we are not talking about corporate debt but personal debt, the debts of an individual.
We have people earning a monthly salary of K1 million but living a life of K2 million plus. We also have people whose earnings are in millions of kwacha but living lives of those whose earnings are in billions per month. How is this possible? This is only possible through debt or unearned income. And unearned income is a prima facie case of corruption.
Debt, if not well managed, can easily get out of control. A person can end up in debt before he even realises it. Getting a credit card, taking out a loan or making a major purchase can put you in debt if you don't have sufficient resources to cover the expenses. Loss of employment can easily put one in debt. You may have a good job and good credit, then suddenly you find yourself out of work and the debt begins to mount. Before you know it, your good credit is dwindling as you struggle to maken your payments. When you fall behind, debt quickly takes hold of your life.
Debt can have many negative effects on a person's life. A person with bad credit may steal from his employers or from other people.
Financial problems can have disastrous effects on relationships. Money problems are one of the main causes of marital disputes. Spouses spend time arguing over money because of lack of proper money management on the part of one or both spouses. In some instances, there isn't enough money coming into the household to cover the expenses. In other situations, the income may be insufficient to cover normal expenses but the spending habits are out of control.
Being in debt can put a person under enormous pressure. And with one's mind focused on their debt, sleepless nights can become a pattern. You may find that you are not as efficient as you should be at work, and your temperament may change. People who are suffering from stress often become irritable and short-tempered. Debt can seem like a never-ending circle.
We even have situations today where people are borrowing money to pay off another debt, and the cycle continues. The stress of being in debt can lead to frustration and even depression.
Debt can even affect your physical health. The worry and constant stress of debt can take its toll on your body as well as your mind. People often suffer from headaches, stomach upsets, anxiety and other conditions.
Lack of sleep and not eating properly can have adverse effects on one's health. People often avoid dealing with debt because they just don't see any way out of the dilemma, but this just makes the situation worse - causing more worry, more stress and more adverse effects.
It is best to deal with the ill-effects of debt by taking one step at a time to eliminate the debt. Getting out of debt isn't going to happen overnight, but the longer you try to avoid the debt, the more it will continue to mount. There is need to take steps to conserve your resources.
It's not every kwacha that one earns that should be spent. There is need to save. Even with very low earnings, one can still manage to save something. And the benefits of saving are gigantic. One of the fundamental principles of finance is the concept that K1 today is more valuable than K1 a year from now.
The reason for this is two-fold. First, a kwacha will probably buy fewer goods and services in the future due to the destructive force of inflation. Second, if one has a kwacha in his hands today, one can invest it and earn a return in the form of interest, capital gains or dividends. The best money advice one can ever give you is to firmly establish this time value of money concept in your head. The key to financial prosperity is realising the potential value of every kwacha that comes into your hands. In fact, we think of cash as a seed - you can either eat it, that is spend it; or sow it, that is invest it.
Money, like water, expands to fill the container in which it is placed. If you lack an objective set of financial goals for your life, you probably reach the end of each month and find yourself broke. You vow that next month will be different, but it never is. This scenario is certainly one which is familiar to many of our people. Fortunately, it doesn't have to be that way.
If you find that you do not have enough money to cover all your expenses, find a way to raise money and cover the shortfall. If this means you ordering and selling fish at the market, reducing your drinking sprees, do it.
Think it sounds too hard? If so, you must answer this question for yourself: is the pain of reducing your drinking sprees and other luxuries greater than the pain of being in financial bondage? If it is, you need to resign yourself to remaining in the same financial situation for the rest of your life.
In fact, if you are prone to using debt as a means of upgrading your lifestyle, the problem will probably grow worse with time. Taking control of your finances creates a sense of empowerment that will reach into every area of your life.
The freedom that comes from knowing that you and your family will be provided for regardless of what may come up cannot be expressed in words. It is something you will experience for yourself when you make the decision that being financially independent and secure is more important than impressing your neighbours with material goods.
Labels: LENDING RATES, OLIVER SAASA, SAVINGS
Read more...
Zambians must adopt a culture of saving, says Saasa
By Mukosha Funga
Mon 08 Oct. 2012, 14:30 CAT
ZAMBIANS must curb their appetite to borrow and learn to live within their means, says Professor Oliver Saasa. In an interview yesterday, Prof Saasa said there was need for people to adopt a culture of saving.
"The average Zambian at the moment is poorly paid or has no income at all because of the high poverty levels. And that is why the average Zambian has no saving culture or the capacity to save; it is a hand-to-mouth kind of disposition," he said.
Prof Saasa said the saving culture was both a function of the earning capacity of the individual where money was worth saving to yield interest but more importantly, it was for those that had the money to save.
He added that it was also a function of the interest rate and the attractiveness of the banking sector for people to save.
"When we go to the bank to borrow, they will charge you more than 20 per cent interest but when you put the same amount of money in the bank, it will yield interest, which of course is the motivator for saving; they will give you about three per cent," Prof Saasa said.
He said there was need to encourage people to open bank accounts as a way of encouraging savings.
"...Less than 20 per cent of Zambians have accounts today. We need to encourage more people to create accounts," Prof Saasa said.
He also urged banks to open branches in the rural areas so that everyone could have a chance to save the little they had in a proper manner.
"It is very important for people to start saving more than they borrow. They should begin to live within their means," he said. "If you do not have the money, ensure that you minimise the capacity and curb your appetite to borrow."
He hoped that as the economy grew, the culture of saving would be strengthened in the country.
"The more the economy grows, the more the likelihood of seeing improvement because there will be more money in the people's pockets but for now, people must live within their means," said Prof Saasa.
Labels: LENDING RATES, OLIVER SAASA, SAVINGS
Read more...
Banks ordered to lower charges
Saturday, 02 June 2012 21:19
Prince Mushawevato
Local banks have been given a two-week ultimatum to review their
high service charges and interest rates which have seen depositors’ funds depreciating instead of appreciating and
lowered the country’s banking population to only 30 percent. The banking sector has in the past three years failed to attract reasonable deposits because of their high service charges. The trend has also negatively impacted on business and the local economy.
Currently, several financial institutions charge between US$1 and US$3 per transaction and monthly service charges.
However, during a symposium organised by the Affirmative Action Group (AAG) in collaboration with the Bankers’ Association of Zimbabwe (BAZ), Reserve Bank of Zimbabwe (RBZ) Governor Dr Gideon Gono said this was an aberration he would address urgently.
He gave the banks two weeks to address the anomalies.
“Funds deposited into banks are supposed to appreciate rather than depreciate. I am against the charges being levied by banks on deposits and I am going to address the anomaly in the next 14 days,” he said.
A recent survey commissioned by the Ministry of Finance revealed that 33 percent of the population does not save money due to limited banking products and high bank charges.
Dr Gono said the unfavourable service charges would be dealt with successfully. He is expected to address the issue in his monetary policy statement set to be announced next month.
“We are not going to destroy the existing structures but only improve them to meet our needs,” he said.
“I have already dealt with the collateral challenges and the issue of interest and bank charges should not be a problem. There is need for banks to lower interest rates so that they promote indigenisation programmes.”
Dr Gono also said the banking sector was using more funds to generate little profits because of its failure to create opportunities for small and medium-scale enterprises.
“As at December 31, the banking sector realised US$70 million profit and US$19 million of the money is attributable to foreign-owned banks.
“The banks used US$800 million in input costs to generate the profit, with more than US$200 million attributed to the participation of locals.”
Official statistics indicate that more than 70 percent of Zimbabweans are employed in the informal sector.
It is also estimated that more than US$2 billion is circulating in this sector.
AAG national president Mr Keith Guzah also called on banks to do more to support SMEs, which, he said, were critical to economic growth.
“The banking sector is not realising the importance of SMEs. We have new banks in terms of ownership, but the mentality is still the same. Our hope is that the banks develop flexible lending strategies,” he said.
“If banks do not create opportunities, programmes that support business and indigenisation exercises will struggle. We are not expecting to get money that is not accounted for. We are just pushing for the provision of programmes that we can participate in.”
Labels: BANKING, LENDING RATES
Read more...
Gono slams banks
Tuesday, 29 May 2012 00:00
Martin Kadzere Senior Business Reporter
RESERVE Bank Governor Dr Gideon Gono has slammed banks for high bank charges, saying such
“extortionist tendencies” were discouraging deposits, especially from small to medium companies.
He said he would soon issue a directive to financial institutions to charge reasonable fees and not to charge service fees on inactive accounts. Dr Gono was speaking before a Parliamentary Portfolio Committee on Small to Medium Enterprises last week.
Glen View North legislator Mr Fani Munengani had expressed concern over high bank charges and, in some cases, where debits were made even if there was no transaction.
“I am going to tell the banking sector (to) make a choice,” said Dr Gono.
“You either agree voluntarily on reasonable amounts (bank charges) and also that you do not charge any cost on any account where there has not been an transaction . . . (or) if you don’t want to give them interest, then give them (depositors) back their money if full.
“We are engaged in discussion with the banking sector and I am happy to report that it is a matter high on our agenda between the governor and the Finance Ministry. If we have to create regulations or mediate between savers and the banks . . . we have to do that.”
Dr Gono said the banks had developed a culture of wanting to make money “beyond what is reasonable”.
Out of US$4 billion bank deposits, authorities believe that more than US$2 billion could be out of the banking system.
Two weeks ago, Finance Minister Tendai Biti said Government would put in place a policy framework to address distortions of “crazy lending and non-existent deposit rates”.
He said Government had engaged the Bankers’ Association of Zimbabwe but there had been no progress.
Since dollarisation in 2009, most banks have been making much of their revenue from non-funded income, which are service fees and commissions.
While Dr Gono admitted that the banks do incur costs of running the accounts, the levels at which money was being taken “are unfair”.
On the development of SMEs, Dr Gono called for harmonisation of laws that promote growth. He also said he was concerned over what he called the ”little support” that the banks were giving to the sector, which employs about 70 percent of the working population.
In the five months to May this year, banks advanced US$164,4 million to small to medium enterprises, about 5 percent of the total advances.
Labels: BANKING, GIDEON GONO, LENDING RATES, RBZ, TENDAI BITI
Read more...
PF government following the development plans of the MMD government-Chikwanda
TIME PUBLISHED - Thursday, April 5, 2012, 2:29 pm
The Patriotic Front Government says its development agenda is anchored on the sixth National Development Plan. Finance Minister Alexander Chikwanda has said that the PF government has not discarded the development plans of the MMD government.
He said the private sector should note that PF developments and economic plans are also laid out in the mid-term plans and the annual budget. Mr Chikwanda said this on a ZNBC special recorded TV programme which is expected to air at 21 hours on Thursday.
On monetary policy, Mr Chikwanda said that the Bank of Zambia has introduced the Policy Rate to address the disparity between leading rates and the inflation rate. He said it is not acceptable that there should be 400 percent disparity on lending rates which stand at 25 percent while inflation is at six percent.
Mr Chikwanda also said the two million Kwacha income tax threshold which takes effect this month will create spending power and stir the economy to grow.
And he Patriotic Front-PF party has reaffirmed its commitment to deliver on its election campaign promises. Vice President Guy Scott who is also party Vice President says the PF party will not be preoccupied with the election victory but concentrate on uplifting the lives of Zambians.
Dr. Scott was speaking when he addressed PF officials in Kabwe in Central Province on Wednesday.
Dr Guy Scott also said that the opposition Movement for Multiparty Democracy (MMD) will never come back to power just like the United Independence Party (UNIP) which he said has been in the opposition for more than 20 years since it lost to MMD in 1991.
The Vice president encouraged members of the PF in central province to work hard and make the party stronger by recruiting more members. ZANIS reports that Dr. Scott said the party wants the Mkushi North Seat which has been nullified to completely displace the MMD from Central Province where they used to enjoy more support.
He noted that the PF lost the 2008 election by 2 per cent because people in Central Province voted for MMD which he said should not be the case during the by-elections. Dr. Scott was speaking in Kabwe yesterday when he met PF members after a tour of Mukobeko Maximum Prison.
And Central Province Patriotic Front Chairman Benson Chali says the party is well positioned to win all the by-elections that have been created as a result of nullification of results following the petitions.
Mr. Chali told the Vice President that the opposition MMD Councilors have approached the party with intentions of wanting to defect to the ruling party but was waiting for the petition results to be heard.
He said more members have since joined and promised to scope the Mkushi North seat which was recently nullified in the high court. The Lusaka High court recently nullified the Chama North and Mkushi North seats which were petitioned by the PF.
ZNBC
Labels: BOZ, ECONOMY, GUY SCOTT, LENDING RATES, MMD, PF
Read more...
Investrust welcomes BoZ's 9% lending rates benchmark
By Joan Chirwa-Ngoma
Mon 02 Apr. 2012, 13:00 CAT
INVESTRUST Bank says BoZ's setting of benchmark lending rates at nine per cent will reveal the Central Bank's monetary policy stance.
Welcoming the development yesterday, Investrust Bank managing director Friday Ndhlovu said the Bank of Zambia's decision will signal to the market its intentions regarding money supply, inflation rate expectation and other market factors that help in the determination of lending interest rates by commercial banks.
The Bank of Zambia has set the country's inaugural benchmark interest rate at nine per cent in a policy shift intended to broaden financial markets and augment ongoing government efforts to lower lending rates.
Last Monday, it announced the introduction of a Policy Rate, named BOZ
Policy Rate, effective today, April 2, 2012, to replace the money supply targeting that has previously been its major policy tool.
The policy rate allows BoZ to clearly signal its monetary policy stance to the market, providing financial market participants with a credible and stable anchor for setting of interest rates on their credit products.
The economic indicators that would guide BoZ Policy Rate adjustments, include, among others, output, expected inflation and the exchange rate.
"However, for it to succeed, government policy must be consistent and this must reflect in the intentions signalled by the central bank through the policy rate so as to avoid volatility in interest rates and other economic variables such as inflation. Interest rates volatility and unstable inflation would cause foreign players to shun the Zambian financial market due to high uncertainty risk," Ndhlovu said in an emailed statement issued by the bank's public relations manager Ackim Mwale.
"This could cause significant turmoil in the financial Market and could be difficult to reverse in the short term as has been the case in other markets that have adopted similar policies."
Ndhlovu warned that without consistency in policy direction, pricing for term lending would prove difficult for both lenders and borrowers as they would be unable to price the expected volatility with reasonable certainty.
"This is because the policy rate is determined using short term variables and in this case the policy rate will be reviewed monthly. It follows therefore that one can only be certain over a one month horizon," said Ndhlovu.
"Nevertheless, it will help to make interbank activity more efficient and transparent. For the public, it is important that the policy rate is not construed as the rate at which the borrowing public will access credit but is an indicative rate at which commercial banks will transact amongst each other and borrow at from the Central Bank as lender of last resort, within prescribed margins. This rate will be reviewed monthly depending on what the Central Bank wants to achieve as they implement monetary policy. Commercial banks will add their own margins which will vary from client to client depending on perceived risk."
Labels: BOZ, FRIDAY NDHLOVU, INTEREST RATES, INVESTRUST BANK PLC, LENDING RATES
Read more...
COMMENT - Zambia's central bank setting interest rates at 9% means that this is the lending rate from them to other banks, and that bank to consumer lending rates are going to be higher than that. Lower is better, but it still puts lending rates for consumers above 9%.
BoZ sets benchmark lending rate at 9%
By Gift Chanda
Fri 30 Mar. 2012, 13:00 CAT
THE Bank of Zambia has set the country's inaugural benchmark interest rate at nine per cent in a policy shift intended to broaden financial markets and augment ongoing government efforts to lower lending rates.
On Monday, BoZ announced the introduction of a Policy Rate, named BOZ Policy Rate, effective April 2, 2012 to replace the money supply targeting that has previously been its major policy tool.
The policy rate allows BoZ to clearly signal its monetary policy stance to the market, providing financial market participants with a credible and stable anchor for setting of interest rates on their credit products.
The economic indicators that would guide BoZ Policy Rate adjustments, include, among others, output, expected inflation and the exchange rate.
In adjusting the BoZ Policy Rate, the Bank's overall objective would be to maintain inflation within the average target of seven per cent for 2012.
"The Bank has weighed the inflation risks and has determined that average inflation during the policy-relevant period would remain below seven per cent and the BoZ Policy Rate, consistent with this development, has been set at nine per cent," said BoZ deputy governor Dr Bwalya Ng'andu.
"The Bank will continue monitoring economic and financial developments and may adjust the policy rate if the need arises."
The Policy Rate will be reviewed on a monthly basis.
Labels: BOZ, LENDING RATES
Read more...
Bank of Zambia sets benchmark interest rate at 9%
TIME PUBLISHED - Friday, March 30, 2012, 4:40 am
Bank of Zambia yesterday rolled out a monetary policy framework to replace money-supply targeting, setting the inaugural benchmark interest rate at 9 percent, which analysts said signalled significant monetary tightening. The rate will come into effect on April 2.
International analysts said the new benchmark represented monetary tightening, most notably because the central bank’s overnight lending facility – the rate it charges commercial banks as a lender of last resort – is due to be set at 250 basis points above the policy rate.
“This is a significant tightening,” said Razia Khan, head of Africa research at Standard Chartered in London. “From levels of around 6 percent previously, overnight rates should now fluctuate within a 7-11 percent band.”
The new rate, which has been in the pipeline for more than two years, should also add more transparency to what is already an attractive frontier market for international bond investors chasing after high yields.
Unlike its counterparts in East Africa, Zambia has managed to keep a lid on inflation in the last 12 months, due in part to the relative stability of its currency, the kwacha, against the dollar.
However, since populist opposition leader Michael Sata was elected president in September, the kwacha has weakened from around 5,000 to 5,300 amid concerns about more state pressure on foreign investors, particularly in the mining sector.
Bank of Zambia (BoZ) deputy governor Bwalya Ng’andu said the effect of kwacha weakness posed a risk to non-food inflation, although stable food prices in the rapidly expanding agricultural producer should moderate the overall picture.
“The bank has weighed the inflation risks and has determined that average inflation during the policy-related period would remain below 7 percent,” he told a news conference to announce the new rate.
Under Sata’s predecessor, Rupiah Banda, the central bank had made clear it wanted to introduce a benchmark interest rate, although Sata’s firing of BoZ governor Caleb Fundanga shortly after taking office had cast doubt on those plans.
One of Sata’s policy priorities has been to cut the cost of credit for Zambia’s businesses and its 13 million people in order to stimulate growth beyond the mining sector.
With the reforms, Zambia is marching in the footsteps of other frontier African states, most recently Uganda, which launched a benchmark rate and inflation target last July to tame inflation that had soared to a 17-year high of 16 percent.
The new policy took time to bed down, and inflation shot up to more than 30 percent in the final quarter of 2011 before a flood of foreign cash into high-yielding domestic debt reversed a slump in the shilling, cutting the cost of imports
[Reuters]
Labels: BOZ, INTEREST RATES, LENDING RATES, STANCHART
Read more...
BoZ to introduce fixed interest benchmark
By Chiwoyu Sinyangwe
Wed 28 Mar. 2012, 13:00 CAT
THE Bank of Zambia has introduced a fixed benchmark interest rate, in a policy shift intended to broaden financial markets and augment ongoing government efforts to lower commercial bank lending rates.
The policy rate would allow BoZ to clearly signal its monetary policy stance to the market, providing financial market participants with a credible and stable anchor for setting of interest rates on their credit products.
The country has operated an open market system since it liberalised economic policies in the early 1990s.
Under the current regime, Zambian commercial banks determine their own lending rates without any official reference point.
Since coming into power, the Patriotic Front has announced sweeping reforms to the monetary policy management, with a view to lowering the cost of lending in the country to ease access to working capital by local entrepreneurs.
Some of the changes announced by the government included lowering the reserve ratio for both local and foreign currency deposits to five per cent from eight per cent previously.
To boost the fall in lending rates, the government also reduced the corporate tax for the banking sector from the previous 40 per cent to 35 per cent to provide more liquidity to the local commercial banks "to lend cheaply".
In a statement yesterday, BoZ head of public relations Kanguya Mayondi announced a BOZ policy rate with effect from April 2, 2012.
"A policy rate is utilised to influence monetary and credit conditions in an economy. This policy rate will, in this regard, allow the BoZ to signal an increase or a decrease in the price of credit in the market," Mayondi stated.
"To announce changes to the BoZ Policy Rate, the Bank of Zambia will be issuing a monthly communiqué covering, among other things, factors taken into account when arriving at its decision on the BoZ Policy Rate as a means of explaining its monetary policy stance. The first BoZ Policy Rate shall be announced on Thursday, March 29, 2012."
Mayondi stated that increased reliance on interest rate policy-based instruments was expected to provide a relatively more transparent and efficient process through which BoZ could better anchor inflation expectations.
"Following this reform, it is expected that the standard practice of quoting the price of loans and similar credit products by all commercial banks will be BoZ Policy Rate plus a margin," he stated.
"The margin will be set by commercial banks on the basis of their risk premium assessments. This transparent way of pricing credit products will enhance many stakeholders' business planning processes and assist in efficiently managing their financial commitments. Further, this will enable borrowers to understand the basis upon which commercial banks price their credit products."
Mayondi stated that the Central Bank, in collaboration with other stakeholders, would continue to work on building an effective and efficient financial system which is expected to benefit all stakeholders accordingly.
Labels: BOZ, INTEREST RATES, LENDING RATES
Read more...
Stannic cuts base lending rates
By Gift Chanda
Tue 27 Mar. 2012, 12:59 CAT
STANBIC Bank Zambia has cut its base lending rates to
11 per cent effective April 15 this year, the company announced yesterday. The move would make the bank with the lowest lending rates in the country.
It said the reduction in the rates from 16 per cent to 11 per cent was in support of the steps taken by both the Bank of Zambia and Ministry of Finance to reduce statutory reserves, cash reserves and the tax rates for banks.
Stanbic, a member of South Africa's Standard Bank Group Ltd, further announced that it would meet the new minimum capital requirement for commercial banks before the June 30, 2012 first deadline.
The government has raised the minimum capital requirement for commercial banks from the current K12 billion to K104 billion for local commercial banks and K520 billion for foreign banks.
The measure to raise minimum capital requirement for banks is intended to mobilise additional resources to enable banks participate more effectively in growing the economy by increasing credit available to the private sector.
The increase in the minimum capital requirement would further, make the banks more resilient to economic shocks.
"As a bank, we are adapting our business and becoming more efficient and also growing our volumes to cope with the much lower base reference rates for kwacha lending," stated managing director Dennis Kennedy.
Kennedy added that Stanbic Bank was a committed long-term investor into Zambia and had taken this positive step as a clear demonstration of its long-term commitment to support the growth initiatives of the Zambian government.
Standard Bank Group Ltd reported a 21 per cent rise in its 2011 profit, helped by a drop in bad debts and its refocus on fast-growing African markets.
Net income climbed to 13.2 billion rand (US$1.7 billion) from 10.8 billion rand a year earlier.
Africa's top lender by assets has been expanding in sub-Saharan countries such as Nigeria, as part of a retooled strategy that led it to exit Russia and Argentina over the last year.
Labels: LENDING RATES, STANBIC
Read more...
FINCA to slash lending rates
By Gift Chanda
Tue 20 Dec. 2011, 13:40 CAT
FINCA Zambia Limited plans a major reduction in lending rates next year after posting a rise in 2011 loan repayments, says company chief executive officer Keith Sandbloom. In an interview, Sandbloom said 2011 was a good year, in which the firm recorded a 97 per cent loan repayment rate.
"I can report that business in 2011 has been very great. We managed to extend business and
our total clientele has increased this year by almost 30 per cent," he said.
Sandbloom further expressed confidence that K57 billion worth of loans would have been disbursed by the end of this year.
"I am happy to report that the success that we had in 2011 is allowing us to do some new things in 2012 which will benefit many clients," Sandbloom said.
"One of the changes we are making is that we are going to be reducing the cost of borrowing on all of our loans by about 20 per cent and that is through reduction in interest rates and also reduction in fees."
He said the reduction would significantly benefit all the institution's clients and also improve access to financial services in the country.
"As FINCA, we have always been committed to having a very transparent pricing on our loans; meaning that people know what they have to pay right upfront before they receive the loan. So the second change we are going to be making to our pricing is that we are going to be calculating our interest rates based on the declining balance of our client's loans," he said.
[And they couldn't have done this in the past 20 years? No one has still explained the existance of a permanent liquidity gap (2% savings and 24% lending rates) for the last 20 years. - MrK]
"Currently, many of the micro finance institutions use what is called ‘flat' interest rates. That is the clients are paying the same interest rates every month despite the balance reducing. But we are going to adopt declining interest rates; meaning that as a client repays the loan and the balance reduces, so does the interest rate."
Sandbloom also emphasised the need for micro-finance institutions to reduce lending rates and extend their services to the unbanked areas of the country.
He said the financial sector currently has more opportunities than competition due to limited access to finance by many Zambians.
"The task before all of us, therefore, is to ensure that we make our loans accessible to people, affordable so that more and more business owners can have the benefits of accessing financial services," said Sandbloom.
Labels: BANKING, LENDING RATES
Read more...
