‘Reserve ratio affects loan issuance’

BANKERS’ Association of Zambia (BAZ) says there has been a low credit dispensation to the public due to the increased reserve ratio to the Bank of Zambia (BoZ).
BAZ chairperson Shankardas Gupta who could not state the extent of the reduction because the banking sector is still carrying out an assessment, said the low credit dispensation will affect the economic growth in the long run.
“The increase in statutory reserve ratio from eight to 14 percent caused an increase in the cost of funds for the banks. Further, the interest rates on treasury bills also increased correspondingly, deposit rates also started increasing taking the cue from these rates.
“There has been a lower credit dispensation which will affect the economic growth in the long run…as banks were challenged with the high cost of funds (deposits),” Mr Gupta said on Wednesday in response to a press query on the performance of the banking sector this year.
He also said there is need to reduce inflation to increase liquidity, which will in turn result in the provision of more public finance.
“An easing on the inflation will bring more liquidity for the banks prompted by the release of funds from the statutory reserve and this will give the necessary push for credit growth which has slowed down. That is what we expect should be done in 2015,” he said.
Mr Gupta, however, said the banking sector has remained solid, disbursing loans amounting to K21.7 billion to key sectors of the economy.
The banking sector also remained well capitalised and profitable in 2014 with total assets amounting to K46.8 billion as at September 30, 2014, representing about 33 percent of the country’s gross domestic product.
On the economy, Mr Gupta said Zambia has been resilient despite experiencing some turbulence during the first half of the year owing to the depreciation of the kwacha against the United State dollar and other major currencies.
“In response, the sector held high level consultations with the regulator, the BoZ after which the regulator came up with policy actions, which subsequently stabilised the kwacha and regained about half of its lost value,” he said.
The kwacha has since then been trading within range and has remained stable trading at K6.30.

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