THE banking sector recorded a huge increase in the demand for personal loans in the fourth quarter of 2020, partly triggered by a surge in requests to pay for tuition fees, according to a new BoZ Survey.
According to the Bank of Zambia’s (BoZ) Credit Conditions Survey report for the fourth quarter of 2020, released earlier this month, the banking sector recorded a noticeable rise in the demand for personal loans, driven by a surge in applications to pay tuition fees ahead of the school reopening.
The survey, however, noted a drop in the demand for car and mortgage finance loans during the same period under review due to the increased cost of vehicles caused by a severely devalued kwacha.
“Credit conditions for households tightened further in quarter four of 2020 largely in line with expectations. This was mainly due to sustained strict lending conditions by most banks in an effort to curtail elevated default risk. In the next quarter, most banks expect credit conditions to remain tight on account of low economic activity and possible increase in defaults due to reduced business activities in light of the second wave of the COVID-19 pandemic. Demand for personal loans continued to be high in the quarter under review in line with expectations. The re-opening of schools led to a surge in demand to meet tuition fees and related expenses. In the following quarter, banks expect demand for personal loans to remain high as households seek to augment their declining incomes amidst rising cost of living,” the report revealed in part.
“Most banks reported tight credit conditions for SMEs largely due to weak macroeconomic conditions that prompted them to adopt strict criteria in reviewing credit applications. Commercial banks expect tight credit conditions for SMEs to continue in the first quarter of 2021, mainly on account of tight lending requirements driven by the rising default risk.”
It also disclosed that the weak kwacha was the main driver of subdued demand for car loans as prices for both new and used motor vehicles substantially increased.
“As anticipated, demand for car loans fell for the eighth consecutive quarter. The weak kwacha was the main driver of subdued demand as prices for both new and used motor vehicles substantially increased. In the coming quarter, banks expect demand for motor vehicles to continue weakening owing to depressed economic outlook and expected further depreciation of the kwacha. Demand for mortgage loans declined in the quarter under review and was at variance with banks’ expectations of an improvement. This was largely due to much higher than anticipated property prices. This was in addition to the depreciation of the kwacha, which was cited to have pushed up the cost of imported building materials. In quarter one of 2021, banks expect demand for mortgage loans to remain subdued on account sustained increase in prices of properties and building materials,” it read.
Commercial banks also reported a rise in demand for working capital by SMEs due to tight liquidity that led them to seek working capital to support business operations following the partial relaxation of COVID-19 restrictions.
“Banks reported a rise in demand for working capital by SMEs for the seventh consecutive quarter consistent with expectations. The rise in demand was due to tight liquidity that led SMEs to seek working capital to support business operations following the partial relaxation of COVID-19 restrictions. Banks expect demand for working capital by SMEs to remain high in the first quarter of 2021 as most of them seek liquidity to stimulate and keep their businesses running in light of rising operating costs. Conversely, demand for long-term financing remained weak in the fourth quarter, contrary to banks’ expectations that it would remain unchanged. The weak demand was mainly due to subdued economic activity and uncertainty about the medium-term economic prospects that curtailed appetite to borrow for long-term projects. In the next quarter, most commercial banks anticipate demand for long-term financing to remain weak as doubts about growth prospects intensify amidst uncertainty about the second wave of the COVID-19 pandemic and weak economic outlook,” it stated.
“The tenure for both working capital and long-term financing for SMEs remained relatively long as most banks maintained their existing conditions. In the first quarter of 2021, banks expect to maintain relatively long tenures for both categories of financing. Collateral requirements for both working capital and long-term financing equally remained unchanged as banks rarely revise these requirements. The majority of commercial banks anticipate collateral requirements to remain the same in the first quarter of 2021.”
It was further revealed that banks reported a decline in interest rates on personal, car and mortgage loans due to the stimulus packages by government and the BoZ as well as the low Monetary Policy Rate (MPR).
“Most banks reported a decline in interest rates on personal, car and mortgage loans. This was largely due to the stimulus packages by government and the Bank of Zambia as well as the relatively low Policy Rate of eight per cent. Most banks expect lending rates for personal loans to fall, while those for car and mortgage loans are expected to be maintained in the first quarter of 2021. This is partly on account of the current low Policy Rate, which the markets expects to remain the same, and continued access to the less expensive funds under the Targeted Medium-Term Refinancing Facility (TMTRF),” read the report.