The Bankers Association of Zambia (BAZ) has appealed to government to finish dismantling the outstanding arrears that have swelled to nearly K14 billion owed to contractors for the much-needed liquidity to be injected back into the economy.
And the association has urged government to take the austerity measures seriously and ensure that they are implemented to benefit the banking industry and wider economy in general.
In an interview with News Diggers! in Lusaka, BAZ executive director Leonard Mwanza said government should finalize dismantling the arrears owed to contractors to help inject the much-needed liquidity back into the economy, which would help ease pressure on the high Non-Performing Loans (NPLs) ratio and accelerate lowering of interest rates on loan facilities.
Domestic arrears in the first quarter of 2018 increased to K13.91 billion from K12.77 billion due to a rise in arrears related to roads construction, according to Finance Minister Margaret Mwanakatwe.
“We have noted that there is a slight increase in domestic arrears and our call to government is if they can unwind those arrears, they can bring the much-needed liquidity, the liquidity that we need to extend to the much-needed support to the private sector. And you know that the NPL is still high at 12.8 per cent. We all need to work towards reducing the NPL ratio to make sure that once we have unlocked the liquidity from those that have borrowed from the banking sector, we are very hopeful that interest rates can run down as long as the NPL starts coming down as well,” Mwanza said.
“The banking sector is very alive to the fact that the interest rates are quite high and not very affordable to the majority of the borrowers in the economy. But granted to say that, interest rates have been coming down; at the end of April they scaled below 24 per cent, but with a little more reduction of the corporate sector where interest rates are now somewhere around 20 per cent.”
And Mwanza urged government to implement the austerity measures seriously to benefit the banking industry and economy in general.
“We need to see some of these austerity measures being put into full implementation. I think we get a bit more worried sometimes when on one side we are seeing great effort in trying to maintain controls, but on the other side, I think we tend to see that we tend to divert from what we are trying to reach out. So, given the fiscal side, which they are looking at controlling, we would like to urge them to ensure that, their resolve to balance the fiscal side and monetary side, is taken as a serious issue for the industry because once the two do not speak to each other and they start tilting to the other way round, we don’t want to start seeing reversals,” he observed.
“I think from the Bankers Association of Zambia, one thing we have been asking for is transparency in information coming out from the Ministry of Finance, and what we are seeing is that, in terms of transparency, we now know the full value in terms of what the country owes; from the local market, as well as from the external markets borrowings. So, we would like to say that from that perspective, I think the issue of doubt in terms of the value of what the country has contracted has been put to rest since we all know that the debt position is now very clear. On the other hand, basically, the issue is on the austerity measures, which have been pronounced, but particularly we need to speak to the stability on the monetary side of things in terms of inflation, which is at 7.8 per cent, the exchange rate which has been very stable. It received some bashing sometime in April, but I think it has gone back to below K10 [per dollar],”
Mwanza, however, added that the banking sector has recovered from poor growth in the first quarter and registered some minimal developments in deposits and loans acquired in the second quarter of 2018.
He noted that there had been a positive performance in banking sector in the second quarter given the increased number of deposits and improved loan book portfolio recorded period ending June 30.
“There has been a bit of some recovery, a bit slowly, the loan book has started going up, it went up by 2.3 per cent end of May. So, it just shows you that there is a bit of recovery that is coming through the market. The deposits are also increasing; they went up to about 2.4 per cent when you compare April to May. So, it just shows you that there is some kind of positive outlook, deposits are going up, particularly on the corporate sector. But obviously, the major issue is that the NPLs are still very high,” said Mwanza.