HARARE: The Reserve Bank of Zimbabwe (RBZ) has put in place an interest rate guideline where borrowers with low credit risk from the productive sector can access loans at a cost of between 6% to 10% per annum to stimulate economic activity.
The new measures, contained in the Mid-Term Monetary Policy statement released on Wednesday, are meant to support productive sectors of the economy “in order to unleash the economic growth process”.
Borrowers with medium credit risk will access loans at a cost of 10% to 12% per annum. Those with high credit risk would access loans at a cost of 12 to 18%. housing finance will be accessed at a cost of 8% to 16% per annum.
Banking institutions are required to effect the new lending rates for both existing and new borrowers, with effect from October 1, RBZ governor John Mangudya said on Wednesday. The new measures will punish consumptive lending, which will come at a cost of 12% to 18% per annum.
Mangudya said in view of the high interest rates currently obtaining in the economy, there was scope for reduction to ensure that lending rates are supportive of economic recovery.
“In this regard, banks are urged to reduce their cost structures to enable them to contribute to the reduction of the cost of business in Zimbabwe,” he said.
Mangudya said the interest rate guidelines were agreed upon by RBZ and the Bankers’ Association of Zimbabwe “within the broader policy to streamline costs of doing business and stimulate economic activity through affordable credit facilities in the domestic banking system”.
Mangudya said banking institutions should, therefore, re-orient their lending towards productive and export sectors such as horticulture and mining that generate foreign exchange to enable Zimbabwe to exploit its competitive and comparative advantages in these areas.
He said the downward review in bank charges and interest rates were envisaged to achieve the key objectives of stimulating aggregate demand, promote the resuscitation of industry, improve the cost of doing business and support sustained economic growth and development.
“The agreed interest rate guidelines should also act as an incentive for borrowers to timely service their loans, improve their risk rating and access cheaper financing from banks. Overall, this interest rate structure is expected to benefit both banks and the banking public,” Mangudya said.
Lending by banks has always been skewed towards individuals at the expense of the productive sector. Of the $4 billion total banking sector loans and advances as at June 30 2015, more than a quarter was channeled to individuals.
“Depressed lending to capitalintensive sectors such as construction, communication, mining and the manufacturing sector is reflective of the limited capacity of banking institutions to provide long-term funding as well as the short term nature of deposits,” Mangudya said.
Companies require cheap longterm financing to replace obsolete equipment and become effective, thereby reducing the cost of production.
Banks on the other hand are constrained to offer long tenure loans due to the short term nature of deposits with demand deposits accounting for more than half of the $5,6 billion total banking deposits as at June 30.
