RBZ Urging Banks To Revise Down Interest Rates

The banking sector is in a good momentum characterized by its profitability last year. Shrewd investments and lending practices have significantly reduced non-performing loans and prop the banking sector’s profitability. The shrewd practices have consequently lowered the number of loans released into the economy.

However, the Reserve Bank of Zimbabwe is reportedly in discussions with Bankers Association of Zimbabwe to lower interest rates on loans in productive areas of the economy.

Speaking at the Zimbabwe International Trade Fair (ZITF), Vice-President Constantino Chiwenga said:

The Reserve Bank of Zimbabwe has also engaged the Bankers’ Association of Zimbabwe to reduce interest rates on loans for productive purposes.

Last year’s monetary policy introduced a ceiling of 12% per annum on lending rates and 3% for some bank charges.

In the Confederation of Zimbabwe Industries manufacturing survey, 70% of the respondents said financial products for the manufacturing sector should have low-interest rates and reasonable terms to match. Therefore, this effort by RBZ seeks to ease the accessibility of financial products in these type of sectors. 

Local banks are accused of lending at rates that are Zimbabwean dollar based and not US dollar based which supposedly translates into high-interest rates. Mangudya once stated:

We are in a dollarized economy; we need to make sure that our interest rates reflect the currency that we are using. The problem in Zimbabwe is that (banks) are using the Zimbabwe dollar-based regime to determine interest rates

While the lowering and capping of interest rates are good for borrowers who are struggling to secure loans, low-interest rates would more likely curtail the banking industry’s profitability.

Lowered interest rates would reduce the cost of borrowing and encourage credit-starved companies to borrow. So, to maintain their profitability, banks would need to increase their lending volume to offset the effects of lowered interest rates.