High bank interest limits borrowing-EAZ

COMMERCIAL banks’ investments will go down due to fewer people borrowing from financial institutions because of the high interest rates, Economics Association of Zambia (EAZ) president Chrispin Mphuka has said.

Dr Mphuka said in an interview that it was obvious that it would become more difficult for people to borrow from banks due to high interest rates.

He said the increased policy rate by the Bank of Zambia (BoZ) from 12.5 to 15.5 percent had caused commercial banks to adjust their interest rates which made them lose investment because clients had stopped borrowing.

“It is obvious that because of the high interest rates, it will become more difficult to borrow. What to expect is that the number of people borrowing will become less and less because of the higher interest rates,” he said.

Dr Mphuka said the low investments for banks would negatively have an impact on the national output production.

He said however that it was understandable that banks decided to adjust their rates because they were in business.

“The interest rate must remain positive, so if prices of goods and services are going up, it is justifiable for banks to raise their interest rate,” he said.

Dr Mphuka said interest rates had to remain positive to match operations on banks.

“It is understandable because if the inflation rate continues to increase then expect interest rate to go higher because we cannot have negative interest rate.

“Banks are correct to adjust their interest rates because the rate at the moment is minus inflation called the real interest rates,” he said.

Dr Mphuka also said consumers would feel the heat because mortgage interest rates would become expensive.

“I expect that bank interest rates will increase so much, not on the consumer but on banks. As consumers borrow for mortgage, it will become very expensive now.

“It may affect the ability of the economy, in other words, investments will go down and impact negatively on national output production,’’ he said.

Meanwhile, Dr Mphuka said collateral when obtaining loans from banks would be cheap due to Government’s decision to limit its borrowing from commercial banks.

Dr Mphuka explained that expensive collateral was caused when Government borrowed heavily from commercial banks, forcing banks to lend to Government than individuals.

“What causes expensive collateral is when Government borrows too much; banks opt to lend to Government through Treasury bills and open market operations.

“Banks opt to lend to Government than individuals; so that’s what happens, it is triggered by Government to a certain extent,” he said.