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NewsDay

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Mangudya speaks on interest rates cap

Business
Reserve Bank of Zimbabwe (RBZ) governor John Mangudya says the capping of lending interest rates to a maximum of 12% is a step in ensuring they reflect the currency Zimbabwe is using.

Reserve Bank of Zimbabwe (RBZ) governor John Mangudya says the capping of lending interest rates to a maximum of 12% is a step in ensuring they reflect the currency Zimbabwe is using.

BY NDAMU SANDU

RBZ governor John Mangudya
RBZ governor John Mangudya

Zimbabwe uses a multi-currency regime that is dominated by the United States dollar.

In an interview last week, Mangudya said the high interest rates were giving rise to non-performing loans (NPLs) that have plagued the banking sector.

“In a dollarised economy, we need to make sure that the interest rates reflect the currency that we are using. We are utilising the Zimbabwe dollar base to determine the interest rates. Yesterday [Wednesday], the Fed increased the interest rates to a range of between 0,75% and 1%,” he said.

“We need to make sure that our interest rates in Zimbabwe are dollar-based and not Zimdollar-based. If you provide a company a loan at high interest rates, the chance of repayment becomes so slim and you create non-performing loans.”

In his January monetary policy statement, Mangudya decreed that lending rates should not exceed 12% per annum effective April 1 and that bank charges that include application fees, facility fees and administration fee, should not exceed 3%.

He said affordable credit must be provided to both large and small-scale businesses and individuals to enable them to invest in productive activities that increase jobs, exports and reduce poverty.

The RBZ said last week that the apex bank has a number of facilities to reduce the cost of doing business in Zimbabwe.

“What we have done in the banking sector is that we have Zamco [Zimbabwe Asset Management Company], we are putting credit reference system and we also have the Aftrades [African Export-Import Bank Trade Debt-Backed Securities].

All these are trying to ensure that the cost of doing business in Zimbabwe goes down,” Mangudya said.

Zamco was established in 2014 to buy secured NPLs and free the balance sheets of banks to be able to lend again. This came after the NPL ratio rose to 20,45%. The ratio of NPLs to total loans was 7,87% as at December 31.

The $200 million Aftrades facility began operations in 2015 and functions as a window of last resort at RBZ. The facility was recently extended by two years and will now expire in February 2019.

Total trades under this facility amounted to $641 million over a two-year period from the effective date of the facility in February 2015.