THE banking sector should come up with interest rates and charges that are aligned to those of the region if the sector is to be revived, economists said this week.
The economists said the era of â€œcartels and a captive marketâ€ where banks posted super profits at the expense of the public was over.
Consultations on interest rates on lending and deposits have started in the sector after the January introduction of multi-currencying with the South African rand chosen by the government as a currency of reference.
Economists told the businessdigest that the banking sector should benchmark the charges in line with regional rates and lending risk factors to come up with attractive figures for business.
Economic Planning and Investment Promotion minister Elton Mangoma recently said consultations were underway on the rates and charges.
Mangoma said: â€œThe local banking system can now issue foreign exchange loans in support of productive sectors at rates which take into account risk assessments by the banks and the cost of capital in international financial markets.
â€œThe local banking system is still working out the interest rate on deposits as a way of mobilising savings.â€
When the economy was on a slide last year, on-lending interest rates were more than 10 000%.
Independent economist John Robertson this week said the banking sector, in deciding the rates, should take into account that the rand was scarce in the country and that their charges should not be much higher than those in South Africa.
â€œWith the rand being the reference currency, banks should set interest rates in line with those prevailing in South Africa but they should be marginally higher and remain flexible,â€ he said.
Robertson said the rates should be attractive to depositors to encourage savings.
â€œIf they are not attractive the culture of not banking will continue and foreign currency will remain outside the banking sector,â€ he added.
Currently, interest rates in South Africa are pegged at 9,5%.
Financial institutions in Botswana last week reduced the prime lending rates to 14,5% in what the Bank of Botswana said was a response to weakening inflationary pressures.
Botswana has pledged to offer a US$70 million line of credit to Zimbabwe. The money will be sourced from its local banks.
Bulawayo-based economic analyst Eric Bloch said interest rates should be pegged based on the rand and the US dollar.
â€œThese are currencies widely used in Zimbabwe. There will be need for monetary authorities to set rates that are consistent with those in the US and South Africa,â€ he said.
Former Zimbabwe National Chamber of Commerce president Luxon Zembe said banks should align their operations with those of financial institutions in the region.
â€œThe banking sector is expected to revert to proper practices,â€ he said. â€œIn coming up with charges, the sector should note that clients now have options to transact within the region. So, they have to peg competitive rates.â€
Zembe said competitive rates would help in instilling confidence in potential foreign investors.
Mangoma said a lot was being done to ensure that the countryâ€™s banking sector returns to normality.
â€œA system has now been put in place to allow payments and transfers of funds between parties and banks within the country without resorting to corresponding offshore banks,â€ said Mangoma. Â
Government has removed restrictions on business transactions by deregulating restrictive exchange controls and delegated export administration and payment authority to banks.
Individuals and companies are now free to pay for goods and services offshore as well as service external debts without prior exchange control approval.
Mangoma said: â€œIn order to remove bureaucratic hurdles associated with the processing of loan applications for both domestic and foreign investors, the government simplified the approval process for external loans, with authority delegated to banks to process loans of up to US$5 million without prior treasury and Reserve Bank approval.â€
The adoption of the multi-currency system in the countryâ€™s national payment system left most Zimbabwean banks with reduced balance sheets to the extent that they were no longer able to fully meet the financial requirements of their clients.
BY NQOBILE BHEBHE