HARARE – Intergrated financial services group, CBZ Holdings (CBZ), said the new low interest rates regime will help promote economic growth through increased production.
This was after the Reserve Bank of Zimbabwe (RBZ) put a cap on interest rates at 12 percent effective next month in an effort to stimulate aggregate demand, promote the resuscitation of industry, improve the cost of doing business and support sustained economic growth and development
However, market experts have warned that while this development was good news to hard-pressed borrowers, low interest rates were likely to put a strain on retail banking profitability.
But in breaking rank with most bankers’ concerns, CBZ chief executive Never Nyemudzo said the new interest rates will bring relief to the borrowing public and corporates who have found it difficult to access expensive loans.
“I firmly believe that affordable financial products create a big pool for banks. Lending is never a margin game but a volume game. You need to lend to as many people as possible at a reasonable price so that you continue getting your income,” he told businessdaily.
“We strongly agree with the apex bank on the 12 percent rate, but already our minimum lending rates are already at six percent. However, these are rates for our top profile clients,” Nyemudzo added.
Lower interest rates make the cost of borrowing cheaper and encourage consumers and firms to take out loans to finance greater spending and investment.
Local banks have been charging interest rates as high as 35 percent excluding default rates of equal or higher thresholds.
The previous punitive interest rates have been blamed for high prevalence of non-performing loans, as they have made it difficult for companies to repay.
However, in his 2017 monetary policy statement, central bank governor John Mangudya said affordable credit was very important to enhance output and productivity.
“For the national economy to flourish, affordable credit must be provided to both large and small-scale businesses and individuals to enable them to invest in productive activities that increase jobs, exports and reduce poverty.
However, cost, accessibility and entrepreneurship remain as the most critical barriers to expanding financial reach and depth in Zimbabwe,” he said.
The RBZ boss noted that his organisation has continued to engage with banking and microfinance institutions to ensure provision of affordable credit in order to boost credit to the productive sectors of the economy.
While the bank is pleased to note that banking institutions have been working towards reduction in lending rates, he said, the rates are still relatively higher when other ancillary charges and default interest rates are applied.
“In order to ensure that the banking sector continues to support the productive sectors of the economy, with effect from
April 01, 2017, all banking institutions are required to ensure that lending interest rates should not exceed 12 percent per annum and that bank charges that include application fees, facility fees and administration fee, should not exceed 3 percent,” Mangudya added.
Zimbabwe’s financial services sector has borne the brunt of the economic collapse of the last decade and a number of local banks have collapsed over the years.