COMMERCIAL banks have once again begun hiking their Minimum Lending Rates (MLRs) surpassing the 80% mark, further dampening economic prosperity prospects of already cash-strapped customers. <
The move comes barely two weeks after the 150-member government-appointed National Economic Consultative Forum (NECF) said it was making “frantic efforts” to curb and arrest “rapid expansion in money supply to about 150% by December 2002 and unsustainable rates of inflation that accelerated to 228% by March 2003”.
Last month commercial banks increased their MLRs, claiming that this was in tandem with the high inflation figure, which stood at 228% in March.
However, the figure rose to 269,2% and 300,1% in April and May respectively. Predictions – especially from the International Monetary Fund (IMF) – are that inflation will surpass the 450% mark by year-end.
Analysts say this could result in commercial banks further increasing their MLRs to reach 100%, making Zimbabwe a “no-go area” for investors.
Zimbabwe’s year-on-year inflation has been rising sharply from 116,7% in January 2002 to 198,9% in December 2002.
NMB Holdings Ltd chairman Paddy Zhanda said: “The hyperinflationary trend is driven mainly by the high money supply growth and the cost-push effects of the depreciating parallel market exchange rate. The purchasing power of the Zimbabwe dollar fell by nearly two-thirds during 2002, with a dollar in 2003 now worth less than one cent of its value in 1990.”
Analysts said the commercial banking sector was simply taking advantage of inflation as well as the skewed economic climate.They said the Ministry of Industry and International Trade’s failure to monitor price controls currently being ignored by unscrupulous businessmen worsened this.
The managing director of the Industrial Development Corporation of Zimbabwe Ltd (IDC) Mike Ndudzo, one of the few money-spinning government-controlled parastatals, blasted the increase in MLRs, saying they would result in his company failing to service its loans and also reduce the “stipend” dished out to government annually by way of a dividend.
The IDC’s subsidiaries include Zimbabwe Phosphates (Zimphos), Motec Holdings Ltd, and Zimbabwe Glass Industries who borrow extensively in order to source essential inputs – sometimes from external sources.
In an interview Ndudzo said: “The issue is much more serious than the increase in MLRs. Actually we are facing problems securing loans from banks who regard us as risky customers. Even the Reserve Bank does not give us preference when we apply for allocations. We (IDC) should actually be considered to qualify for the high risk facility.”
He said it was also very disheartening to note that some businesses continued to receive money from commercial banks at the expense of others.
“People are using their status as so-called ‘blue-chip’ to be considered for funds. Instead of using the money to source essential equipment or inputs they buy shares on the money market,” Ndudzo alleged. “The RBZ should make it a regulation that each client does not utilise more than 50% of a facility so that it is also accessed by others.”
Financial analyst and consultant Andy Hodges said: “The parallel market seems to be a normal thing now. The government says it is taking a close look at the market and yet does nothing about it. Obviously when a commercial bank is caught using parallel market rates it should know that it should immediately lose its foreign currency trading licence.”
Century Holdings Ltd (Century) general manager (treasury) Charles Nyoka said: “We have observed an upward movement in interest rates over the last few months and one is inclined to conclude that interest rates are tracking inflation currently at 300,1%. We have also seen the effective yield on two years Treasury Bills just a touch under 100% and the rest of the market read that as to mean that the Reserve Bank of Zimbabwe expect rates to continue on an upward trend for some time.”
Nyoka said the RBZ’s accommodation rate for unsecured funds could sometimes go as high as 96,15% which had the effect of increasing the average cost of funds for banks hence the increase in MLRs.
Top of the list in MLRs is Century Holdings Ltd, which is charging 88,5%.
Bottom of the pack at the moment is Zimbabwe Banking Corporation Ltd (Zimbank) which is charging 68%.
Ndudzo said: “Without borrowing powers some of us who have huge import and inputs requirements will continue to suffer, defeating the purpose why government set us up in the first place.”
The Minimum Lending Rates currently being charged are as follows:
Jewel Bank 81,5%
NMB Bank 75%
Royal Bank 69%