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BANKS are partly responsible for the collapse of companies due to the punitive interest rates they charge on loans despite getting cheap funds from National Social Security Authority, Public Service, Labour and Social Welfare Minister Priscah Mupfumira has said.
Minister Mupfumira accused banks of sowing crippling debts saddling many companies by doubling or trebling interest rates for loans they give regardless of the fact that many of them get funding from NSSA at grossly discounted cost.
She said that banks receive funds from the social security authority at 5 percent and 7 percent, but go on to charge in excess of 15 percent interest per annum on the same funds, a situation that has created huge debt burdens for firms, driving some into liquidation.
“The banks are partly responsible for part of the problems that we have in this economy. In the end, some of the companies collapse because of the debts,” the minister said. “Public funds should be utilized by people at affordable cost,” she added.
Minister Mupfumira said this was partly the reason that working together with Finance Minister Patrick Chinamasa they had mooted the idea of a social security building society; to provide affordable funding to civil servants and low income earners.
She said that NSSA should take a developmental approach by investing in housing, infrastructure, agriculture and small to medium enterprise, reflecting the new economic order, “instead of concentrating on the money market where the risk is high”.
NSSA general manager James Matiza said the authority requires that banks on-lend the money they give them at a maximum of 10 percent per annum, a margin of 3 percent, since NSSA lends to the local banks at an interest rate of 7 percent per annum.
He said that NSSA had resorted to making follow ups to find out who the banks would have lent to and in all instances the companies confirmed getting loans at prescribed rates.
“But you don’t rule out the possibility of collusion where the companies agree that they were given at 10 percent when in fact they were given at 15 percent, because 15 percent per annum is still considered cheap in Zimbabwe,” Matiza said yesterday.
Government ministers have often complained about the rate at which banks lend to productive sectors, which have left many of them entangled in extricable debt situations.
At some point after dollarisation, some companies borrowed at interest rates of as much as 30 percent and signed to default penalties of over 80 percent due to scarcity of funds. Banks still charge interest rates of as much as 20 percent per annum.
The banks cite innumerable reasons for the punitive interest rates including liquidity crunch, high cost of securing or importing the funding, security issues and high cost structures.
The Reserve Bank of Zimbabwe is trying to work out a framework to persuade banks to lower interest charges on loans for affordable borrowing to help turnaround the economy.
Online Reporter