Mozambique: Interest rate rises making it difficult to repay loans, warns CTA

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Mozambique: Interest rate rises making it difficult to repay loans, warns CTA

9:46 CAT | 25 Aug 2016

TVM (File photo) / Spokesman to CTA / Mozambican Confederation of Business Associations, Eduardo Sengo

Successive rises in interest rates are making it impossible for some Mozambican companies to pay off bank loans, reports Wednesday’s issue of the independent newssheet “Mediafax”.

In order to fight inflation, the Bank of Mozambique has repeatedly hiked its key interest rates. Since October 2015, the Standing Lending Facility (the interest rate paid by the commercial banks to the central bank for money borrowed on the Interbank Money Market) has risen seven time. The latest increase was in July, when the Bank of Mozambique increased the rate by 300 base points, from 14.25 to 17.25 per cent.

Commercial banks have followed the lead from the central bank and have increased their own interest rates, making the cost of loans, especially for small businesses, increasingly prohibitive.

A spokesperson for the Confederation of Mozambican Business Associations (CTA), the economist Eduardo Sengo, confirmed to “Mediafax” that there are indeed companies in this situation, through he did not name them, or say how many businesses find themselves unable to pay off their loans. They have approached the CTA, asking it to intervene with the banks in order to restructure the debts.

But the CTA does not want to be involved in negotiations with the banks. “These are questions of management of each company”, said Sengo. “The company must manage its situation with its bank”.

He said the CTA is urging companies in difficulties to analyse their current financial situation, and draw up a plan which they can present to their banks, in order to reach an understanding that will harm neither the companies nor the banks.

“Certainly they will reach a solution, and this is better than defaulting on their loans to the banks”, he added. But he stressed that, as far as the CTA is concerned, “this is a private matter between the company in debt and its bank”.

“We cannot intervene in the management of each company”, he said.

However, the CTA has discussed the question of interest rates in general with the banks – notably the complaint that when the Bank of Mozambique increases its reference interest rates, the commercial banks do likewise, but when the central bank’s rates fall (as happened earlier in this decade), the commercial banks are reluctant to cut their rates.

“This has been discussed several times”, said Sengo, “because it seems that the commercial banks are much quicker to adjust to rises rather than to falls in interest rates”. The banks had tried to justify this behaviour, claiming that, in setting their own interest rates, “they don’t depend exclusively on the central bank, but have a series of costs which influence the structure of interest rates”.

The CTA found such arguments unconvincing – the banks were effectively saying they had to follow the central bank’s lead when it increased interest rates, but not when it lowered them. Sengo accused the commercial banks of opportunism – they were saying “we shall share what is bad, but we shall not share what is good”.

Source: AIM