KABANDA CHULU, Lusaka
SOME commercial banks might take a cautious approach in reducing interest rates due to the increased levels of non-performing loans (NPLs) that are beyond acceptable industry thresholds of 10 percent.
According to the Bankers Association of Zambia (BAZ), NPLs currently stand at 12.4 percent of the average bank loan book.
A sigh of relief has enveloped the business community and the country at large that interest rates will be reduced further following the Bank of Zambia’s reduction of the policy rate by 150 basis points to 11 percent from 12.5 percent and the statutory reserve ratio by 300 basis points to 9.5 percent from 12.5 percent.
In an interview yesterday, BAZ chief executive officer Leonard Mwanza said the pronouncements have created a much more relaxed liquidity environment (availability of credit) for the banking sector and has set a pace on the downward trend in interest rates.
“All loans in the banking sector, which are linked to the monetary policy rate, will see interest rates scaled down by 150 basis points [1.5 percent], but banks have different balance sheets, cost structures and risk appetites which ultimately determine their acceptable interest margins.
“The portfolio of NPLs is static but keeps piling up, and banks are still taking care of these loans since they have not yet been forfeited due to lengthy court processes and delays by Government to pay contractors whose loans are linked to the banking system,” Mr Mwanza said.
He said banks may find it difficult to continue lending to sectors that have failed to pay back.
“They will definitely take a cautious approach to protect their loan books,” he said.
The total loan book portfolio for the banking industry stood at K26 billion at end of 2015, and at K23 billion at end of 2016 and K22 billion as at end of June 2017.
So far, Barclays Bank and Standard Chartered Bank have reduced lending rates by 1.5 percent on average.