eBusiness Weekly
Oliver Kazunga
The current spate of price increases in the market are partly being triggered by the 200 percent lending rate policy on new and existing loans that the Reserve Bank of Zimbabwe (RBZ) announced recently, according to business leaders.
Representative of business organisations said this in separate interviews when this paper sought to establish the extent at which the recent policy pronouncement impacted on commercial loan uptake by the private sector.
Effective July 1 this year, RBZ increased the bank policy rate from 80 percent to 200 percent per annum citing the need to align these with the prevailing inflationary developments.
Last month, official rate of inflation rose to 191,6 percent from 131,7 percent in May this year and was not made clear if the increase will be done as and when inflation figures increase.
As part of the measures to tame exchange rate distortions and price volatility, the monetary authority also increased the Medium Term Accommodation interest rate from 50 percent to 100 percent per annum.
The minimum deposit rate for Zim$ savings was also raised to 40 percent per annum from 12,5 percent to encourage long term deposits while the minimum rate for local currency time deposits was raised to 80 percent per annum from 25 percent.
Most of the companies or businesses have in the past been relying on loans borrowed from local financial institutions to capacitate their operations and thus the coming into effect of the 200 percent lending rate policy has negative repercussions on affected enterprises.
This is in relation to their ability to service the loans as well as sustain operations going forward.
It is against this background that economic commentators are on record saying the net effect of the prevailing lending rate policy will clog most firms’ ability to service the loans ultimately increasing the defaulting rate.
In separate interviews, representative of business organisations said they were yet to gather the extent to which the 200 percent interest rate hike has impacted on loans uptake, but businesses have increased the prices for goods and services.
The Zimbabwe National Chamber of Commerce (ZNCC) president, Mike Kamungeremu said: “We haven’t gathered the information in detail, what we only have is that those that have been hit most are those with existing or running loans because of the outstanding amounts the rates were increased.
“So, they (ZNCC members) were not prepared for that and they will take time to adjust.
“Obviously, they will factor that (200 percent interest rate increase) into the cost business so that they pass it on to the consumers.”
He said it was also not clear if there are any of their members that have applied for existing loans following the interest rate hike.
“But it’s not yet very clear if there have been any new loan facilities that have been created after that because the general feeling is that the 200 percent increase was a huge jump.
“They needed a bit of time to adjust, which they were not given.
“I don’t know if there is any of our members who have accessed fresh facilities but the sentiment was that they wanted to do business; they access these facilities to do business and the purpose for the loans was not to speculate, but to do business,” said Kamungeremu.
President Mnangagwa is on record saying the recent adoption of tough economic measures are in response to mischievous behaviour by some economic agents and syndicates who are bent on sabotaging the economic transformation achieved so far under the Second Republic.
Owing to uncouth behaviour by some economic agents, the Central Bank has had to order banks to temporarily stop lending in May, introduced forex transaction tax as well as increasing interest rates to 200 percent.
Asked about the 200 percent interest rate’s potential to trigger default rate, he said: “That’s a possibility my brother, but we don’t want to paint a negative picture.
“It will then make people not to pay off. We hope they will still pay but it will be difficult.”
Bankers Association of Zimbabwe (BAZ) president, Fanwell Mutogo, would not be drawn into commenting on the impact the policy has had on loan uptake by the private sector.
“It will be difficult for me to give you that information from where l sit because l will have to coordinate all banks, but l am sure the Reserve Bank has the information,” he said.
Efforts to get a comment from RBZ governor Dr John Mangudya were unsuccessful as he was not picking up his phone.
Confederation of Zimbabwe Retailers president, Denford Mutashu, said the rates hike has impacted negatively on the sector especially the majority of retailers who have been over borrowed.
“And it is a direct cost to doing business. Most of them actually have passed the hike onto the consumers through price increases.
“They (CZR members) also noted that it affects the sector from the back in terms of the supply chain . . . most of the suppliers are also demanding cash upfront in US$ for some, if not all local procurements.
“And for a retailer or a wholesaler it’s not sustainable because there is no way that a retailer or a wholesaler has, he or she has on their hands the capacity to meet that upfront obligation for the procurement of sugar and all that,” he said.
Confederation of Zimbabwe Industries (CZI) president, Kurai Matsheza said; “certain” businesses will fail to service their loans, adding that at the moment they were not aware of companies that have applied for new loans.
“So far, we are not aware of anybody in terms of our members who has started borrowing and those borrowers with existing loans will or have factored the 200 percent interest into the production costs creating inflationary pressures, sadly hitting the consumer,” he said.
Taking into account that lending rates were at 80 percent before jumping to 200 percent, this is a huge strain on companies’ balance sheets.
“Certainly, businesses will fail to pay off the loans and we have requested this to apply to new loans, so it’s a huge strain on companies’ balance sheets,” said Matsheza.
