Banks have sabotaged local economy – CUTS

ZAMBIA’s economy has been sabotaged by the banking sector due to the bank’s failure to inject enough liquidity in circulation as a result of higher interest rates, observes the Consumer Unity Trust Society (CUTS) International.

Commenting on BoZ Governor Caleb Fundanga’s concern over low competition in the banking sector, CUTS International Zambia acting coordinator Simon Ng’ona said commercial banks are the only variable that appears not to be responding to the much talked about improved and sustained macroeconomic environment in Zambia.

“For instance, inflation has remained in the single digit rates and this should influence a reduction in some of the charges in the sector beyond what is pertaining, irrespective of the alleged high commercial bank operational costs,” Ng’ona said.

“Real and nominal Gross Domestic Product (GDP) has been growing on the back of a relatively constant velocity of circulation meaning that money supply is supposed to increase proportionally.

However, one is tempted to say banks have to some extent sabotaged the economy due to their failure to inject enough liquidity in circulation due to high interest rates making the whole phenomena a paradox.”

He challenged the Bank of Zambia (BoZ) and the Competition Commission to diagnose the bottlenecks that halt the progressive realisation of the fruits associated with a healthy banking sector.

“Once bottlenecks are identified, remedial measures must be undertaken to redress the situation and there is need to crack down exploitative and possible looming exploitative or abusive behaviour which retard effective competition,” Ng’ona said.

He said when analysing the status of competition using the number of players, now 18 banks, as a variable to measure, one is tempted to conclude and rationally assume that there is competition in the banking sector in Zambia.

“However, to get a clear understanding on whether effective competition has ensued or not, it will also be good to analyse the sector by looking at two variables namely, price and non-price competition.

Analysing the latter, it is evident from recent data and seminal reports released that there have been a proliferation of banks and banking products and services such as ATMs, mobile banking, among other products, which on one hand steers non price-competition,” said Ng’ona.

“However, the source of worry has remained with the pricing structure of these services which hinge on the price competition variable.”