adminOf late, there has been an outcry from Government and the banking public that financial institutions were charging outlandish interest rates, a development that has been described as retrogressive in restoring competitiveness in the productive sectors.
Lending rates presently average 18 percent with high risk borrowers accessing credit at rates as high as 30 percent.
In a commentary, Afrasia Kingdom Zimbabwe said the high interest rates showed continued high appetite for funding in the economy.
“Interest rates on the local money market remained firm to depict the continued appetite for funding on the economy emanating against a background of thin liquidity. Interest rates are expected to remain high during the rest of the year as demand for capital remains high relative to supply,” said the financial institution.
The Bankers Association of Zimbabwe has also defended interest rates being quoted on the money market saying the charges were based on economic fundamentals in the economy and could not be fixed.
In separate interviews, economic analysts said interest rates were a function of available funding.
“Deposits have not grown overtime meaning that there is no money available to lend by banks. As a result of limited fiscal space from banks’ perspective, interest rates are on the high side,” said an economist with a leading bank who preferred not to be named.
“There are other factors beyond the banks as investors from which the financial institutions are borrowing dictate the cost of funding based on the political situation in the country. If Zimbabwe continues to be ranked poorly on doing business rankings, it means when local banks seek offshore funding the loans are advanced at high interest rates.”
Another economic analyst, Mr Trust Chikohora, said the liquidity crunch in the economy was not commensurate with long-term borrowing.
As a result of low deposits in the banking sector, he said, local banks advanced short-term loans, adding that the tight liquidity was also caused by transitory deposits.
“The short-term loans that banks are offering have high interest rates while the repay period is also very short. So it is difficult for companies to do viable business and be able to repay the loans on time considering that the interest rates are high and the repay is also short. A lot of companies are facing a lot of financial difficulties because of the nature of the loans accessed from the banks,” he said.
He said banks needed to have high capital levels that would result in them having stronger balance sheets to create a fiscal space that will see the institutions lending at longer periods and at affordable rates.
Online Reporter