Commercial banks in Zimbabwe must start applying caps that will limit their lending rates to a few percentage points above the National Social Security Authority (Nssa)’s five percent benchmark interest rate, a Cabinet minister has said.
Labour and Social Welfare minister Prisca Mupfumira said all banks must lower rates on existing and new loans after agreeing with the central bank.
Mupfumira said banks had reneged on past pledges to the Reserve Bank to lower their rates, which had given Zimbabwean lenders one of the highest returns-on-equity in Africa.
Businesses in the country have long complained that high commercial lending rates, which average 18 percent or more, hobble corporate investment, while individuals say the high cost puts borrowing out of reach of many.
Zimbabwe’s main interest rate on lending to productive sectors is pegged between six percent and 18 percent per annum, while rates for consumptive lending range from 10 percent and 18 percent.
Mupfumira blasted financial institutions for quoting high lending rates even on struggling civil servants despite getting cheap funds from State-run pension fund, Nssa.
An irate Mupfumira on Tuesday said she would meet with Reserve Bank of Zimbabwe (RBZ) governor John Mangudya to implore him to review the high cost of borrowing.
“Banks receive funds from Nssa at five percent interest. I made an analysis and these banks are charging astronomical figures and I think you need to do something about it,” Mupfumira told Finance minister Patrick Chinamasa at an engagement with civil servants to appraise them of their conditions of service and non-monetary incentives.
A report on the banking industry released in April by advisory firm, MMC Capital, reported that Zimbabwe’s banks made combined profits of $128 million during the full year to December 31, 2015, a 62 percent increase from $79 million after-tax profits recorded the previous year.
The trend has continued as the performance of the banking sector thrives despite the negative macro-economic indicators.
“They are being given money at five percent and there is no one charging less than 10 percent, they are all charging between 11 and 18 percent interest,” Mupfumira said.
“And then we hear banks are making profits. We see it all the time. It’s not their money; it’s your money,” Mupfumira said, this time directing her remarks to Apex Council — a grouping of civil servants’ representatives.
“I will meet with the governor and . . . Chinamasa. They have to deal with these banks and building societies because there is no reason why they should charge high interest rates.
“The president (Robert Mugabe) has said banks should charge two percent, that’s what the president wants. You can’t take people’s money and then you charge the same people 10 percent.”
With industry on its knees amid mass company closures, thousands of Zimbabweans who lose their jobs have taken out loans and are struggling to pay off their debts. Defaulters have remained on the rise as the ailing economy continues to hit ordinary citizens hard.
Observers have warned that caps on commercial lending rates could cause banks to restrict lending.
Mupfumira, however, praised Nssa’s brain child, the National Building Society (NBS) — which came into being a result of an investment through the National Pensions Scheme (NPS) fund and the Workers Compensation Insurance Fund — as the only bank serving the needs of civil servants.
The bank offers a 9, 5 percent interest rate payable over a 25-year period, with 30 percent of the housing loans reserved for civil servants. daily news\n