The Bankers’ Association of Zambia has warned that credit consumers should immediately expect a hike in interest rates on loan facilities following the central bank’s huge increase in the Monetary Policy Rate (MPR).

And Mwanza says some commercial banks could eventually downsize operations to cope with Zambia’s depressed economic outlook.

Commenting on the Bank of Zambia’s (BoZ) hiked MPR by 125 basis points to 11.50 per cent from 10.25 per cent, BAZ chief executive officer Leonard Mwanza warned consumers of an immediate increase in interest rates on loan facilities offered by commercial banks following the BoZ’s increased MPR effected, Wednesday.

BoZ Governor Dr Denny Kalyalya said the increment as a necessary move to arrest Zambia’s escalating inflation and prevent a full-blown economic implosion.

“The increase in the policy rate from 10.25 per cent to 11.50 per cent will automatically result in an increase in interest rates by 125 basis points for all monetary policy linked credit facilities. Customers are, hereby, advised to take note of the notifications from the various banks and make their own informed and independent decision to either increase their repayments or loan tenure. In line with the increase in the cost of funds on the interbank as well as the open market, we anticipate that interest rates shall remain elevated and we urge borrowers and the general public to contact their bankers to agree on the most cost-effective option of managing the increase in interest rates,” Mwanza cautioned in a statement, Thursday.

He added that the spike in lending rates on loan facilities should equally be expected to further dampen the country’s economic growth going into the New Year.

“Banks commit to continue playing their role in supporting productive sectors of the economy in agriculture, energy, wholesale and retail, tourism, mining, construction and logistics sectors in order to help in reversing the slowdown in economic growth. This will, however, be weighed down by the increase in interest rates, kwacha depreciation, electricity shortages and the increasing stock of arrears, which now also include loan repayments for government workers, which may put pressure on NPLs, which dropped to 9.4 per cent in September, 2019, but as high as 25 per cent in the microfinance sector,” he added.

And Mwanza, a former Natsave managing director, stated that while commercial banks would remain open for business, some outlets could eventually downsize operations to cope with the country’s depressed economic outlook.

“Banks shall remain open to offer workable solutions for its customers, while at the same time, continue to look into their own internal operations and where need be, they shall downsize and restructure their operations to more efficient digital payment channels in order to safeguard their balance sheets, capital buffers and provide shareholder value,” he stated.

He appealed to government to quickly address the country’s fiscal challenges, which had been exacerbated by high public debt servicing repayments and mounting arrears owed to contractors and suppliers.

“The Association recognizes the efforts by government to contain the fiscal challenges and while focusing on debt service issues for both foreign and local debt, it is of equal importance for government to accelerate the dismantling of arrears and avoid the accumulation of new arrears in order to spur economic growth and stability. We, therefore, appeal to government to reduce the stock of arrears on third-party recoveries to avoid heightening the deterioration of the NPLs (Non-Performing Loans), which may lead to asset erosion and reducing capacity to on-lend,” stated Mwanza.

Interest rates continued edging up during the third quarter of this year, reflecting the rise in the cost of funds and yield rates on government securities.

The average lending rate jumped to 26.1 per cent in September, 2019, from 25.4 per cent in June, this year, while domestic credit on the local market drastically declined to 10.1 per cent year-on-year, from 20 per cent during the same period under review, BoZ data shows.