Jan. 31 (Bloomberg) -- The Reserve Bank of Zimbabwe and the Bankers’ Association of Zimbabwe, whose members include the local units of Barclays Plc and Standard Chartered Plc, have reached an agreement to cap interest rates in the country, Governor Gideon Gono said.
The maximum lending rate that can be charged by banks will be 12.5 percentage points above the banks’ average cost of financing, Gono said in a monetary policy statement in Harare, the capital, today. The cost of financing their own borrowings is between 1 percent and 7 percent for Zimbabwean banks and they currently charge rates of as much as 25 percent.
“After 75 days of negotiating between the central bank and the banking sector we finally have an agreement that will substantially reduce banking charges,” he said.
Earlier this month the central bank and 23 banks drew up a draft agreement that lending rates could not be more than 10 percentage points above the companies’ funding costs with further talks planned.
“I did not want to regulate, but there’s been an agreement between the central bank and the Bankers’ Association,” Finance Minister Tendai Biti told a Confederation of Zimbabwe Industries meeting today in Harare.
Further reforms, currently before Zimbabwe’s Justice Ministry, will include a banking ombudsman to monitor interest rates charged by banks in the southern African nation. Banks have been earning as much as 75 percent of their income from non-interest income, Biti said.
Calls to Barclays Plc and Standard Chartered’s units in Harare weren’t answered today outside normal banking hours. George Guvamatanga, president of the association, didn’t answer a call made to his mobile phone.
Biti promised “comprehensive reforms” to compel banks to play a “developmental role” in Zimbabwe.
“It’s taken months and years for businesses to wean themselves from the breast of hyperinflation,” he said.“They have continued with the mindset that you can have returns of 1,000 percent in a U.S. dollar environment.”
Zimbabwe abandoned its currency in Feb. 2009 after inflation accelerated to an estimated 500 billion percent in 2008, according to the International Monetary Fund. The country uses a “multi-currency regime” using dollars, the British pound, South African rand, the euro and the Botswana pula.
The pressure to lower interest rates comes after Biti said in November that the country could amend its banking laws after central bank attempts to restart the country’s capital markets by selling Treasury bills for the first time since 2008 were shunned by financial institutions.
A decade-long recession ended in 2009 when neighboring countries forced President Robert Mugabe and Prime Minister Morgan Tsvangirai to end a political dispute by forming a coalition government.
South Africa’s Standard Bank Group Ltd. also has a unit in in Zimbabwe. Locally-based banks include CBZ Holdings Ltd., Kingdom Ltd. and ZB Bank (Pvt) Ltd.
Other African countries have sought to reduce lending rates by banks in recent months. On Dec. 21 Zambia capped lending rates at 18.25 percent for banks including a unit of London-based Barclays.
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