After the government, it is now the turn of the Senate to complain
about the high interest rates charged by banks
on customers’ loans.
The rationale of the president of the Senate is exactly the same as the
one of the prime minister which is : the Central Bank prime rate is as low
as 2% p.a , how to explain banks are charging at a average rate above 14 % p.a. ?
Well, once again this argument is flawed as as long as commercial banks
won’t be indebted to the Central Bank,
the rate of the latter won’t have any impact on the their own interest rates.
And this situation will remain the same as long as the banks assets will be
primarly denominated in USD instead of the local currency.
The competition for customers deposits is so fierce in the DRC among
the 18 existing banks that sourcing funds is becoming increasingly expensive.
Therefore, it is difficult to expect banks to lower their rates when themselves
have to face higher interest rate to source the deposits that will fund those
loans.
It is funny to see officials claiming lower interest rates on loans
while state entities are enjoying interests on term deposits as high as 7%
p.a on the dollar!
The officials tend to forget that banks have to factor in risk when
pricing an asset. For example multinational companies in the DRC can enjoy rate
between 6 and 8% while their staff can have 10 to 12% or even less in some
cases…
The customers that are charged the higher interest rates are actually
State entities due to a higher risk due to poor management, lack of reliable
financials and/or enforcable securities…
Furthermore, the senate and the government both think that decreasing
the rates will increase the loans to the economy. Once again, this argument is
flawed. Indeed, the assumption is that customers are refusing to borrow because
of the high interest rates while, in general, the banks are refusing to lend
money to customers due to risk considerations.
I argue that this debate will become relevant when the Congolese economy will not depend on the USD which makes the country monetary policy impotent...
