Banks con­tinue to fleece clients

Chronicle (Zimbabwe) - - Business -

Na­tional Eco­nomic Con­sul­ta­tive Fo­rum, in­structed and funded by the Min­istry of Fi­nance and Eco­nomic Devel­op­ment and its devel­op­ment part­ners.

The study con­cluded that even the most prof­itable com­pa­nies in Zim­babwe may not earn re­turns enough to cover the cost of such puni­tive bor­row­ing from the lo­cal banks.

“This cost di­rectly af­fects the de­mand for bank loans and sub­se­quently on how goods and ser­vices are priced in the econ­omy.”

While Kenya and Zam­bia were found to also have high lend­ing rates, stand­ing at 18,08 per­cent and 19,5 per­cent re­spec­tively com­pared to Botswana (7,5 per­cent) and Mau­ri­tius (8,5 per­cent), in­ter­est rates in Zim­babwe are re­garded too steep for a coun­try that uses stronger cur­rency, US dol­lar.

“Zim­babwe’s costs are in real terms com­pared to com­para­tor coun­tries whose in­ter­est rates are charged in lo­cal cur­ren­cies whose value to the dol­lar fluc­tu­ates with any changes to the ex­change rates,” the draft re­port by NECF noted.

The high lend­ing rates are at­trib­uted to poor credit of the coun­try (credit rat­ing in­sti­tu­tions), lack of in­vest­ment ve­hi­cles in Zim­babwe (Gov­ern­ment bonds), the po­lit­i­cal risk at­tached to the coun­try, lev­els of Non-Per­form­ing Loans (higher than in the re­gion) and prob­lems with the col­lat­eral mech­a­nism.

Gen­er­ally, fac­tors of­ten cited for hin­der­ing busi­ness vi­a­bil­ity in Zim­babwe are high cost of bor­row­ing, tight liq­uid­ity, out­dated tech­nol­ogy, use of old plant and ma­chin­ery, de­clin­ing agri­cul­ture out­put, low ag­gre­gate de­mand, elec­tri­cal power out­ages and com­pe­ti­tion from cheap im­ports.

Gov­ern­ment has since broadly re­sponded to some of the is­sues con­strain­ing in­vestors through pol­icy re­forms aimed at im­prov­ing the ease of do­ing busi­ness en­vi­ron­ment to at­tract in­vest­ment, which would ad­dress fac­tors at mi­cro level.

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