Banks urged to charge moderate interest rates

exceeding 15 percent.
Financial institutions are accessing loans from NSSA for on lending to the private sector at 10 percent. Some banks then charge more than 5 percent in interests including interest to NSSA and handling fees.

NSSA is one of the biggest lenders in this country and as of June this year it had advanced about US$180 million to the banking sector for on lending to the private sector. Banks are currently lending at between 15 percent and 25 percent depending on the financial institution.
Finance Minister Tendai Biti supported the initiative in his 2012 National Budget statement saying it was important to ensure that companies have access to reasonably priced liquidity support that has been in short supply since 2009.

“We call upon banks accessing NSSA funds to act responsibly, and comply with the requirement not to exceed the stipulated mark up of 5 percent on NSSA funds,” said Biti.
The conditions outlined by NSSA apply to all loan periods from 30 days up to 365 days.

NSSA would lend the funds to the bank at an interest rate of 10 percent. The banks could add on a profit of up to 3 percent and levy handling and other charges amounting to no more than 2 percent, resulting in an overall cost to the borrowing business equivalent to 15 percent.
The NSSA board was concerned that banks were on-lending the money at exorbitant interest rates and charging high handling fees. NSSA also wanted to know who the money was lent to and make follow-ups to ensure banks stick to this condition.

The amount of funds allocated to each bank depended on a formula applied to information the banks provided, which included the bank’s balance sheet. Longer established banks would have higher allocations than newer ones.

NSSA had to ensure there was satisfactory security for funds that were lent. It was unable to accept shares as security because of the volatility of the stock market. It would, however, in future accept property as security for longer-term loans. A mortgage bond would have to be registered in favour of NSSA.
Bank clients who were lent NSSA funds should be made aware of the source of the funds, so that in the event of their bank collapsing, their loans still had to be paid to NSSA.