Gap between lending and saving rates in Zimbabwe remains ridiculously high

The gap between lending and deposit rates in Zimbabwe remains high despite showing a decline in the week ending 9 January 2015, official figures from the Reserve Bank of Zimbabwe (RBZ) show.

The weekly economic report shows that average deposits rates for the period were lower for all classes of deposits, compared to the previous week.

Savings deposit rates declined from 3,42 percent to 3,3 percent in the review period, while fixed deposits of one month and three month tenors fell from 9,66 percent to 9,37 percent and 11,42 percent to 10,94 percent respectively.

According to the central bank, lending rates were higher for individuals than for corporates, with commercial banks charging an average of 14,18 percent for individuals and 9,85 percent for corporates.

Merchant banks' nominal lending rates for individuals and corporate clients, however, remained unchanged at 19 percent and 18 percent, respectively, during the week under review Local financial institutions have maintained that the high interest rates are a result of the high risk associated with offshore borrowing which is expensive.

In a bid to reduce average lending rates, Government in 2013 negotiated with banks to reduce their lending rates to levels below 10 percent per annum. The agreement was however suspended before the end of the year after banks complained that the move had narrowed margins.

The Zimbabwean banking sector has been affected by the liquidity challenges that have crippled the economy over the past years, which have made the cost of money expensive.

And the majority of bank deposits are short-term which has led banks to offer higher rates for fixed deposits.