Banks to be forced to pay interest on deposits

GOVERNMENT is working on amendments to the Banking Act to compel banks to pay interest on deposits and set limits on interest rates to be charged on loans.

The proposed law will also regulate bank charges as part of measures to boost deposits.

Finance Minister Tendai Biti said this on Wednesday while presenting the Mid Term Fiscal Policy review to Senate.

"We are working on a new Banking Act that will deal with issues of corporate governance. It will also deal with bank charges and the negative interest rates we have at the moment. We are going to create two situations and the first one is mandatory interest rates on deposits and number two is a mandatory situation where there would be an upper ceiling on lending rates," he said.

Minister Biti said the current situation obtaining in the banking sector discouraged people from depositing their money as they lose out on the high charges.

He said the lending rates of over 15 percent per annum were not realistic and worked against the economic turn around as they discouraged borrowing.

"We have a psychological problem in that people still think in Zimbabwe dollar terms and try to damage the US dollar the same way we did with our dollar.

"We have bank charges of over 15 percent yet in other countries they are only 3 percent (per annum).

"People want profit levels of 20 to 30 percent and that is not possible in an economy like ours," he said.

Minister Biti said liquidity crisis was a reflection of the poor performance of the economy characterised by low production among various defects.

Minister Biti said Government would also create a special purpose vehicle to assume the Reserve Bank of Zimbabwe debt that stands at over $1,5 billion.

He said negotiations with the countries' creditors were ongoing for the cancellation of debt that stands at nearly $10 billion.

The debt overhang has also been blamed for stifling the country's turnaround efforts, as scarce resources are being used to repay the loans.

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