High interest rates hit banks in the pocket

THE banking industry is concerned with the upward push in the Non-Performing Loans (NPL) which are heading towards 10 percent of the industry loan book as a result of high interest rates, says Bankers Association of Zambia (BAZ).

BAZ chief executive officer Leonard Mwanza  in an interview said that NPL which were around 7 percent in the first quarter were moving at a worrying rate and could soon reach 10 percent and affect the asset quality of banks.

“By the last review, the non-performing loans were around 7 percent, and we are concerned that they may be heading towards 10 percent due to the high interest rates currently prevailing on the market and that this may soon lead to increased impairments and affect the quality of the entire industry loan book,” he said.

Mr. Mwanza said commercial banks may experience problems on their balance sheets, the quality of the loan book, and may see incremental impairments of their loan books.

“Once this starts playing out we may see banks start repositioning their risk appetites and scale down from high risk sectors to protect their balance sheets and this may affect the pace of credit expansion,’’ he said. He explained that any impairment of loans could lead to the deterioration of the asset quality and threaten the sustainability of the core income which is interest on loans and advances.

“Banks will have to take a knock on their profit and loss as result of the expected increase in NPL,’’ he said.

Mr. Mwanza said the pressure being experienced by borrowers to pay monthly instalments on their loans was in reaction to high interest rates on the market.

“This is more of a reaction to what is going on, when interest rates are high; it means monthly instalments are also increased so indeed there are issues of people meeting their obligations,” he said.

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