By NATION REPORTER
COMMERCIAL banks have rejected the K10 billion stimulus package meant to assist businesses survive the current storm caused by Covid-19 by extending relief financial support, citing that the fund comes with too many conditions which will lead to Government micro-managing the institutions.
This has forced the Ministry of Finance to increase the number of non-banking institutions to participate in the distribution of the fund particularly to small businesses.
The Bank of Zambia has injected a K10 billion medium-term lending facility into the economy to support businesses during the covid-19 period.
This is a three-year facility.
According to an inside source, the stimulus package will force commercial banks to lend funds at a lower rate, thereby not making enough profit but helping the struggling companies with funds for operations.
“Between you and me, no commercial bank has applied for that money,” the source said.
The source revealed that so far, no commercial bank has applied for the K10bn stimulus package from the time it was made available last month.
“That money comes with too many conditions, that’s the reason why people don’t even want to draw it because it comes with too many conditions.
“Banks don’t want to be micro managed, then they will just tell you to keep your money and see how you are going to give it to people because the central bank does not deal with clients,” the source said.
The source also said banks do not want to lend at proposed rates of 16 and 17 percent when the current interest rates on the market were hovering between 28 to 30 percent.
This is despite the facility being loaned out to banks at 13 percent interest.
The facility provides an opportunity for commercial banks to readjust their cost of funding taking advantage of the pricing at 12.5 percent compared to the current yield curve levels which are elevated
Meanwhile, an Economist and Financial Analyst, Mutisunge Zulu, said the facility is not for commercial banks but non-bank financial institutions that service the smaller scale brackets such as SMEs or Micro entrepreneurs who have been adversely impacted by COVID related credit risks.
Mr Zulu, also serving as national secretary for the Economics Association (EAZ), said, if banks are shying away from this facility, then it could be that they already have liquidity or have muscle to cushion covid-19 shocks.
He said it could also be that they do not have adequate collateral because the provisions require for collateral to back drawing.“However, there are some outlier banks that are struggling and will need this liquidity. The industry has 18 banks.
“It is important that the regulator understands the need for these funds to reach the underprivileged business bracket who don’t deal with top tier banks but small ones such as Micro-fins and co-operative banks,” Mr Zulu said.
He stressed that the facility is like a credit card which one only draws on in emergency circumstances and that under no circumstances is one obliged to draw on if they are cash flush.
The facility, he explained, provides an opportunity for interest’s rates to climb down if effectively adopted.
Mr Zulu however said it is a misconception to say commercial banks are shunning the facility based on one or two banks that could have said so.
He said this is cognisance that every bank is at a different stage and have varying strategies.
“However, for those that are thinking of leaning cost in this macroeconomic turbulent environment, the facility is a sure way to meet their profitability objectives in the medium term,” Mr Zulu said.
By NATION REPORTER