Mozambique commercial banks raise interest rates in line with regulator

Login

Register

http://www.clubofmozambique.com/

Mozambique commercial banks raise interest rates in line with regulator

4:28 CAT | 09 Aug 2016

File photo / Mozambique's Central Bank headquarters

Commercial banks are shadowing the Bank of Mozambique and increasing key interest rates – and families and businesses are bearing the burden. We contacted the five largest banks in the country for comment, but only Millennium Bim agreed to talk to us.

Liliana Catoja – the manager of Millennium Bim, the country’s largest bank – explains that given the central bank’s decision, there is no other option but to raise the interest on loans. “Interest rates are higher than they were before. As the Standing Lending Facility rose, all the banks’ prime lending rates also rose – in most cases, byt eh same amount.”

And prime lending rate is pretty usually the minimum that commercial banks will charge on loans. To this, they usually add a profit margin called the rate spread. On Thursday of last week, the average interest rate loans to customers of Millennium Bim was 22:25 percent.

Families and businesses are the main victims feeling the burden of rising interest rates. Companies that are closing their doors because of the situation and families are losing purchasing power.

Pedro, for example, a young man interviewed by “O País Economico” in the city of Chimoio, Manica province, explains that he took out a bank loan at an interest rate of 27.5 percent, but now is being charged 29 percent. He is already thinking about taking on further debt outside the formal banking system..

Speaking on condition of anonymity, another respondent from Manica said his loan repayments were five thousand meticais a month, but due to the increase in interest rates, the bank now withholds 6,500 meticais, more than he can afford, as his income has remained constant.

In Maputo, we asked another person to show us their BCI account statement. The statement showed that in November 2015 this client paid interest of 6314 meticais to the bank. The following month, the interest payment rose to 6439 meticais. In February 2016, it was 6654 meticais and in June, 6921 meticias. This month, the client is expected to pay 7100 meticais. All these increases came into effect before the largest interest rate increase in recent years – 300 basis points, due to come into force on 22 August.

Companies are also suffering. Our reporter interviewed firms operating in the capital, and among those registered with the Association of Small and Medium Enterprises, found two that were forced to declare bankruptcy due to their inability to meet financial commitments.

Association spokesman Araujo Araujo explained that one company, Mulungo Investments Ltd, will have to pay at least 200,000 meticais more to the bank over the next three years due to the rise in interest rates, increasing their operating costs by the same amount.

Another company, Bless Serigrafia e Serviços Ltd has a loan running until February next year and, from July of this year until then, will pay 80,000 meticais in additional interest because of the crisis. This is a cost which was not anticipated, compounding the business’s problem.

Another company struggling for the same reason is the Raima Guest House, with a loan agreement that ends in 2018, which will now have to add 102,000 meticais to its operating cost thanks to the rise in interest rates.

We have contacted the five major bnks in the country to speak about this issue but only Millenium Bim accepted to talk.

Source: O País