MAINTAINING the monetary policy rate at 15.5 percent is a threat to the banking sector as it will create more non-performing loans and distress, says Bankers Association of Zambia (BAZ) chief executive officer Leonard Mwanza.
He said in an interview that the current policy monetary rate would increase non-performing loans and create a distress in the sector and economy because there would be less financial activities.
“The increase in non-performing loans is not a good thing either for the banking sector or the economy at large because we will be seeing a lot of distress cases.
“When you have non-0performing loans increasing, yes, banks will be taking a knock on their balance sheets because they have to make provisions to cover for the non-performing loans,” Mr Mwanza.
He said non-performing loans were a source of concern because they were not healthy for the banking sector as they created a knock effect in the economy.
Mr Mwanza explained that the knock effect was fearful because it affected the flow on lending and that once lending was not going out to the economy then there would be subdued activities.
“This is not healthy for the banking sector because of the non-performing loans; the concern is also on the bank balance sheet and on individuals and corporate borrowers. We will see a lot of stress on the other side.
“We remain at the same level because the market is really tight in term of liquidity so we are not going to see any high exchange pick-up in extension of credit to key sectors of the economy, so we will remain subdued for a while,” he said.
“We are not going to see any change in terms of the level at which the banks are operating with financing new credit pipeline.
“But the fear is in besides the fact that there is little credit extension we are now seeing that existing loans are turning to the left and the non-performing loans on the increase,” he said.
Mr Mwanza suggested that Government should consider quickly reviewing some of the measures that created a distress on the banking sector and economy at large.
He said slightly releasing some of the measures would be a relief to the sector.