Interest rates: Good news from bankers

BANKS say the low stock of deposits in the sector is feeding into the high interest rates in the market – though these are forecast to decline soon.

While interest rates may fall, the Bankers Association of Zimbabwe believes there is need for depositors to increasingly use the formal banking system for this to be realised sooner and sustainably.

Industry, especially the manufacturing sector, is mainly discouraged by the cost of money from local lenders.

And there is concern that while production capacity is nose-diving, the banking sector has remained profitable.

Capacity utilisation in industry dropped from 57,2 percent in 2011 to 36,3 percent last year, while – conversely – aggregate net profit for banks topped US$52,8 million by December 2014 from US$3,4 million a year earlier.

Interest rates are pegged between 15 percent and 20 percent.

BAZ president Mr Sam Malaba believes interest rates are “primarily driven by availability of liquidity, which is a function of the growth in deposits”.

Local brokerage MMC Capital said recently the sluggish growth in deposits was caused by low savings.

It is estimated that more than 90 percent of the US$5,1 billion deposits held by local banks are transitory/short-term.

Experts say in a multi-currency environment, domestic deposit growth is driven by exports, lines of credit, FDI, net portfolio inflows and Diaspora remittances.

“These have been constrained by various adverse factors including sanctions and the huge external payment arrears, as well as perceptions of risk. Banks have, however, consistently reviewed their interest rates on a cost recovery basis in line with economic and financial developments, sectoral performance and repayment record of borrowed clients.

“It is for this reason that banks continue to appeal to stakeholders to use formal banking channels and not keep money under the mattresses’ and to repay outstanding loans so that these funds can be on-lent to viable sectors of the economy at reasonable cost,” said Mr Malaba.

Long-term savings and low levels of non-performing loans (NPLs) are considered a tonic for competitively-priced credit.

NPLs are currently averaging 16 percent — more than three times the international benchmark of 5 percent — which discourages banks from lending.

The Reserve Bank has mandated the Zimbabwe Asset Management Company (Zamco) to acquire toxic loans and as at December 31, 2014, the institution had acquired NPLs worth US$65 million.

Mr Malaba indicated that the acquisition of NPLs by Zamco and the resumption of the US$200 million interbank Afreximbank Trade Debt Backed Securities (Aftrades) will increase liquidity in the economy and drive down interest rates.

The RBZ will manage the Aftrades facility and act as the agent bank for Afreximbank for the purposes of managing the surplus and deficit of participants’ requirements under Aftrades.

RBZ boss Dr John Mangudya said the initial borrowers under Aftrades have already been assessed and approved by Afreximbank. Though market rumour suggests that banks are deliberately starving industry, BAZ contends that this is not the case.

Statistics indicate that individuals have been getting the lion share of loans and advances from banks.

Of the US$4 billion channelled into the market last year, 25 percent went to light and heavy industries, while individuals received 21 percent.

The balance went to energy and minerals (five percent), financial services (one percent), transport and distribution (16 percent), construction and property (one percent), agriculture (18 percent), State (three percent) and trade and services (two percent).

Banks argue that their lending patterns are mainly governed by “prudential guidelines as set by the RBZ”.

It is these guidelines that they use to “structure their lending portfolios in such a manner that they are not over-exposed to one sector or class of borrower”.

“Banks therefore prefer to spread their portfolio across various sectors of the economy, as an integral part of risk management, and this also includes the personal sector,” said Mr Malaba.

BAZ argues that due to the “marked informalisation of the economy”, many small, medium and micro enterprises are run by households or individuals, making bank lending to individuals or the personal sector a necessity.

SMEs have become critical in the economy, with a 2012 World Bank comprehensive scientific survey of the sector showing that 5,7 million people are working in the micro, small and medium enterprises sector, where more than US$7 billion is circulating.