Golden Sibanda Senior Business Reporter
RESERVE Bank Governor Dr John Mangudya has implored banks to return the favour for his effort to rid the banks of non-performing loans by lowering interest rate charges.
The central bank set up an asset management company to assume all secured non-performing loans to give banks latitude to release more funds to productive sectors of the economy. He said interest rates charged by some of the banks were not sustainable, detrimental to economic recovery and aided growth of non-performing loans, already a huge problem.
Presenting his second monetary policy statement on Wednesday, Dr Mangudya expressed reservations about banks still charging margins of 4 percent above the cost of funds. He warned banks charging facilitation fees above 2,5 percent and interest rates of 4 percent over the cost of funds saying this was a breeding ground for bad loans he was trying to rein in.
“Financial institutions in this category are therefore expected to complement the gesture extended to them by Monetary Authorities under ZAMCO and to reflect the benefits to the financial sector of the establishment of the Credit Reference Bureau,” he said.
ZAMCO has so far taken over more than $65 million worth of non-performing loans from banks while an audit was underway to determine the total bad loans eligible for assumption. It was also critical, Dr Mangudya said, for banks to realise that quality low profits were better than high unrealisable profits, which might result in non-performing loans.
Bad loans grew from an average of 0,32 percent in 2009 to 20 percent by September 2010, locking up over $700 million, which should have been loaned out to other borrowers. Compliance by banks to the indicated pricing would also translate into the lowering of finance costs that are debilitating businesses in Zimbabwe. He contends that reducing the cost of finance in doing business would result in the businesses reducing prices, which is necessary for resuscitating and stimulating the economy.
Dr Mangudya, however, was cognisant that among a clique of banks charging punitive interest rates, there were others levying good customers annual rates below 10 percent.
But a good number of banks still charge customers, who have little alternative in an illiquid economy, punitive interest rates under the pretext of high cost of funding and country risk.
There are still banks charging outrageous interest rates as high as 20 percent per annum on secured individual or personal loans, taking advantage of the situation in the country.
Dr Mangudya also proposed that banks should consider introducing low cost bank accounts or offer banking services for which their clients may not have to be charged.
In some jurisdictions such as South Africa, India and Canada, banks have rolled out low cost accounts to make banking more accessible to increase their reach to communities.
The RBZ and Bankers Association of Zimbabwe have since resolved that banks, without low cost accounts, should at least provide basic banking services at low or no cost. Such accounts would have features that include account opening deposit of $5, depositors earning some interest on account balances, no balance statement fees, average account balance of $300 and use of only national Identity card for account opening.