Banks charge punitive interest for loans to industry and commerce because they get funds at a premium due to the high country risk profile, a central bank official said.
RBZ senior divisional chief, economic research and policy enhancement Mr Simon Nyarota, said
Banks are charging punitive interest rates on mostly short-term loans in a development that has seriously constrained industry's capacity to turnaround its fortunes.
"The major reason is the country risk profile. Banks are forced to seek offshore lines of credit, which is where part of the cost comes from," he said.
"You will find that if a bank needs money offshore, it is going to be charged interest. The bank is going to put its own margins and charge interest rates of 15 to 20 percent per annum," Mr Nyarota said.
Mr Nyarota said this during a question and answer session on his presentation after the
Mr Mandiwanza wanted to know if the high interest did not warrant the intervention of the central bank considering that the high cost of capital was hurting industry.
The country's high debt overhang, Mr Nyarota said, increased the country's risk profile and discouraged most lenders from extending more credit to the country.
Banks have therefore taken advantage of the tight liquidity situation to charge punitive interest rates. The liquidity crisis was compounded by low exports, negligible foreign direct investment and little lines of credit.
This comes at a time when the country suspended its own currency due to hyperinflation, which peaked at 231 million percent at the last official country in 2008, which has made it difficult to intervene with monetary policies.
High cost of funding was one of main constraints cited by industry as militating against efforts to turnaround the fortunes of companies, which have seen a drop in capacity.
According to CZI, industrial capacity utilization dropped from an all time high of 54 percent after dollarisation in 2009 to 44,6 percent in 2012 and 39,6 percent in last year.
Other challenges besetting industry include high cost of electricity, labour, water, old equipment, machinery and inputs. With a
Most Popular Stories
- Illegal Immigration Near Historic Low, Despite What You May Have Heard
- Small-Business Loans Fueling Economic Growth
- Ford: New F-150 Is No Lightweight
- Gasoline Costs Drive Consumer Price Increases
- Saudi Arabia Will Open Stock Market to Foreigners
- Durbin Drubs Walgreen for Possible Tax Dodge
- Tesco Head Steps Down After Profit Warning
- Russians Fed Steady Diet of Conspiracy Theories
- Want a Job? Try Minneapolis
- Comic-Con Offers Toy Designers a Chance to Go Wild