Commercial banks fail to cut interest rates

The Bank of Mozambique on Tuesday expressed concern that the commercial banks are not reacting appropriately to the repeated reduction in the central bank’s key interest rates.

Over the last two and a half years the Bank has reduced its Standing Lending Facility (the interest rate paid by commercial banks to the central bank for money borrowed on the Interbank Money Market) 11 times, and it now stands at 8.25 per cent.

Yet the commercial banks are continuing to charge interest rates of more than 20 per cent, and sometimes over 25 per cent, on loans they make to their clients. The commercial banks’ adjustment of their own interest rates “is slow”, remarked the spokesperson of the Bank of Mozambique, Waldemar de Sousa, at a Maputo press conference.

The details show that the banks, in the absence of strong regulation, are simply taking the opportunity to act like loan sharks, charging exorbitant rates to their clients. In September, the average annual interest rate charged by the commercial banks was 20.45 per cent. The average prime rate offered to favoured clients was 15.2 per cent.

Larger banks are more generous than smaller ones. Thus the average annual interest charged by the four largest banks was 18 per cent. The average charged by the 18 smaller banks was a ruinous 24 per cent.

Breaking the figures down in some detail, Sousa said that the proportion of borrowers who obtained loans at less than 15 per cent interest was 1.8 per cent in 2011, rising to four per cent in 2012 and 8.4 per cent so far this year.

At the other extreme, 16.8 per cent of borrowers were charged over 25 per cent interest in 2011, falling to 11.1 per cent in 2012, but rising to 11.3 per cent this year.

The bulk of borrowers fall between these two extremes. This year the banks have charged 45 per cent of their customers between 15 and 20 cent interest, and 35.3 per cent of borrowers had to pay interest at between 20 and 25 per cent.

At a time of historically low inflation, the central bank found these interest rates unacceptable. “Much more will have to be done to align the rates of the commercial banks with those of the central bank and with the inflation rate”, said Sousa. “We are continuing to work with the banks, explaining the information we have about the short and medium term indicators of the economy”.

“We are studying this phenomenon in some depth”, he added, “and we are getting information from countries who experienced the same thing in the past and how they dealt with it”.

He would not be drawn on what measures the central bank might take to force interest rates down. The bank was drawing up a strategy and “we will announce measures at the due time”.

Any measures by the Bank of Mozambique, Sousa added, would also take into account the various fees and commissions charged by the commercial banks. One particularly outrageous fee is the charge of seven meticais (about 23 US cents) for using an ATM. This means that if a client draws out 200 meticais from an ATM, his account is debited by 207 meticais – the bank is thus taking an extra 3.5 per cent from him.

Journalists noted the anomaly that a bank such as Barclays charges seven meticais every time a client uses one of its ATMs in Maputo, but the same bank charges nothing at all for using its ATMs in London.

The commercial banks are also still leaving most of the country outside of the banking system. In September, there were 505 bank branches, which only covered 63 of the country’s 128 districts.

There has been a gradual increase in the number of ATMs – rising from 955 in June to 1,047 in September. Likewise the number of shops and other establishments accepting payment by credit or debit card has slowly risen – from 10,653 in June to 10,828 in September.

Post published in: Africa News

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