Sudden increase in interest rates affecting loan repayments – Mphuka

Economic Association of Zambia president Chrispin Mphuka has attributed the failure by National Savings and Credit Bank (NATSAVE) to recover loans from borrowers to the sudden increase of interest rates on non performing loans during the tightening of the monitory policy.

And Mphuka has questioned NATSAVE if the non performing loans it gave out were insured.

He said this in an interview with News Diggers! in reaction to the revelation that the bank had lost K3 million from defaulted loans.

“The credit of non performing loans shouldn’t be too high because if its too high, it can make the bank to be in trouble. But also, there was tightening of the monitory policy, the amount of non performing loans increased all of a sudden because interest rates were so high and most clients were not able to pay back their loans. So the recovery process has to be… of course there are many issues that keep coming up because its also on how efficient our banking system are because when loans are given, there must be an insurance mechanism or they must be collateral which is the backup,” Mphuka observed.

“So if the court system works efficiently, if a bank fails to collect the money, then they should fall back on collateral and get the collateral. In a banking setup, you need all these mechanisms that are used to safeguard against the occurrence of non performing loans.”

Mphuka however observed that the failure by the named bank to recover the loans could not have a huge impact on the economy.

“But NATIVE is not a very big bank, so to the whole economy, we may not have a big impact. But if a number of banks have high levels of non performing loans, then that may impact negatively on what we call aggregate demand because the ability of banks to pass on further credit is affected and in the process, the bank starts lending less because they are not making money. So it has an effect of affecting the amount of credit that can be generated in the economy and that eventually reduces aggregate demand which in turn affects production. But to what extent, we have more than 19 banks I think. But still at a micro level, that is a problem and it has to be sorted out. So we must ask questions to say did they insure those accounts because the bank has to recover somehow,” said Mphuka.

         

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