Bank’s Interest Rates capped at 18% p.a.

Last week the Reserve Bank of Zimbabwe capped lending rates for finance institutions at 18% and moved in to reform the banking sector in a bid to improve economic activity and enhance stability. Recent history shows that lending rates in Zimbabwe have been as high as 30% and this was stifling companies’ capacity to borrow to fund operations or revive projects. However, lenders blamed the high interest rates on high risk taken in lending to Zimbabwean companies and individuals as well as difficulties in obtaining funding for on-lending. Now the central bank has struck an agreement with the Bankers Association of Zimbabwe (BAZ) to lower interest rates, reserve bank governor, John Mangudya, said in his mid-term monetary policy review on Wednesday. He said non-performing loans ratio for the half year to June had improved from 20% last year to 14% by June 30.

The high interest rates in Zimbabwe have provided scope for reduction “to ensure that lending rates are supportive of economic recovery,” Mangudya said. “In this regard, banks are urged to reduce their cost structures to enable them to contribute to the reduction of the cost of doing business in Zimbabwe”. Banks have now been asked to cap their lending rates at 18% for high risk borrowers but have to lower rates for low risk borrowers at a low of 6% a year. Those in the moderate credit risk band will be charged at a rate of 10% a year. “Banking institutions are required to effect the above lending rates for both existing and new borrowers, with effect from 1 October 2015… banks thrive when business is both willing and able to timely repay their loans. “The downward review in bank charges and interest rates are 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 and thereby going beyond stabilisation,” Mangudya added. He said “all banking institutions should submit to the Reserve Bank by 31 December 2015, three-year board approved Financial Inclusion Plans, with respect to their targets relating to branch network, agencies, account numbers, technology, no frills accounts and other specific suite of products and appropriate pricing among others.”

The central bank is pushing for infrastructure sharing, financial inclusion and the streamlining of costs to ease access to banking services for the Zimbabwean public. It appears the government is now heeding calls by international financiers such as the World Bank and International Monetary Fund to have a low cost structure for companies and government operations.

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