COMMERCIAL banks have stopped giving loans because of low cash levels and high interest rates prevailing on the market.
And the Bankers Association of Zambia has warned that key sectors of the country will start getting hurt if the current high interest rates and lack of liquidity in the market is allowed to hold for too long.
BAZ chairman Clergy Simatyaba explained that commercial banks in the country had stopped lending because they did not have cash to lend out.
“That is happening at the moment purely because in order to stabilise the local currency, monetary policy has been tightened and tightening of monetary policy means there is no liquidity in the market,” Simatyaba said. “So if there is no liquidity in the market, I will not just give out a loan. So banks are restructuring their balance sheets and not giving out loans because of the tightening of the monetary policy. Funds have been siphoned out to try and protect the local currency.”
He said surging interest rates in the country made it very difficult for banks to lend.
“The fact that general interest rates in the market have gone up and the Bank of Zambia overnight lending facility is now at 25.5 per cent means before I can consider any client right now for a loan, I must be pretty sure the client is going to pay,” Simatyaba said. “I am not just going to issue a loan because a client wants a loan.”
He said lack of liquidity in the market was likely to stifle growth the longer it was allowed to hold.
“The downside is that economic activity will slow down and that is what the policy is trying to achieve because when there is economic slowdown, then, there is not so much demand for foreign exchange and then it stabilises,” said Simatyaba. “We really wanted the currency to stabilise as a country, so it cannot go for too long because then other sectors start suffering but at least in the short term, you would have stabilised the currency…but banks are not issuing loans at the moment because of the tight liquidity conditions and the high interest rates now prevailing.”
By last month, the kwacha had dropped by 55 per cent this year against the dollar as falling metal prices, a power crisis and widening budget deficit affect the economy badly, resulting to rising inflation of up to 19.5 per cent this year.
In an attempt to contain the historic fall of the kwacha, the Bank of Zambia (BoZ) tightened the monetary policy environment in the country by increasing its benchmark lending policy rate to
15.5 per cent in November from 12.5 per cent, after raising the statutory reserve ratio to 18 per cent earlier in the year from 14 per cent.
The Central Bank wanted to make the kwacha difficult to access so that it stems demand for foreign currency in the domestic market.
But the scarcity of the kwacha at the disposal of the commercial banks to lend out has thrown out some local entrepreneurs and individual customers, who fear that their plans of expanding their businesses or just refinancing their loans had been hurt.