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Reserve Bank of Zimbabwe building in Harare

LOCAL banks have slashed interest rates by more than 10 percentage points in line with an agreement struck with the Reserve Bank of Zimbabwe (RBZ) to reduce the prohibitive cost of money in the economy.

Local banks had been charging high interest rates on loans in some cases up to 35 percent per annum while paying comparatively very little interest on deposits.

An agreement reached between the bankers association and the RBZ saw the central bank putting a cap on interest rates on loans at 18 percent per annum effective October 1.

Highlights for the week ending September 25, released yesterday by the central bank show that banks heeded the call and slashed their lending rates while interest on deposits had slightly gone up even before the deadline.

“Commercial banks’ weighted lending rates for individuals and corporate clients closed the week under review at 11,8 percent and 8,5 percent, respectively,” the central bank said.

The Reserve Bank said savings deposit rates were at 8,1 percent per month and 9,1 percent for three months.

Previously banks paid less than 5 percent interest on deposits per annum and this failed to attract savings as most people saw no reason to keep their money in the banks where it was instead being wiped out by high service charges. High cost of funding has been a drag on economic recovery efforts as most local companies reeling from under-capitalisation have found the going tough forcing some to close shop.

Banks on the other hand were pointing fingers at their sources of finance for the high cost of money. The country is perceived as high risk, making borrowing for Zimbabwe in external markets difficult and expensive.

But Zimbabweans generally viewed banks as insatiable profiteers. Observers also blamed the exorbitant interest rates for the high cases of non-performing loans which most local banks were struggling with. —New Ziana.