Low liquidity affects lending


LOCAL commercial banks’ are being constrained to lend to consumers as market liquidity remains fairly low.
However, the Bank of Zambia (BoZ) has actively continues to participate in the open market operations (OMO), which is the buying and selling of government securities in the open market to expand the amount of money in the banking system.

This scenario has resulted in some banks to trim lending to would-be borrowers while others have completely halted its lending portfolio, according to most analysts talked by the Daily Mail.
The BoZ is reducing liquidity through the OMO resulting in banks liquidity decreasing due to falling Kwacha, high Government borrowing to cushion budgeted fiscal deficit, widening trade deficit reflecting dwindling export revenue from lower copper prices on the global market and power shortage among other issues.
Highlighting interest rates in its daily treasury for Friday, the First National Bank (FNB) also confirmed that “with the central bank active in OMO, market liquidity remains fairly low with K697 million in circulation.”

The interbank borrowing has reduced with the weighted average rate currently at 14.68 percent, according to FNB.
Cavmont Bank also says in its market report that commercial banks’ aggregate current account balance decreased by K8.41 million to K697.61 million while the overnight borrowing and lending rate increased by 0.07 percentage point to 14.65 percent.

“Total funds traded on interbank were K450.20 million,” the bank notes.
Similarly, Access Bank Zambia Limited aggregate current account balance at BoZ increased from K689.2 million to K697.61.
Bankers Association of Zambia chief executive officer Leonard Mwanza said banks are constrained to give out loans because the market liquidity, which is the degree to which an asset or security can be bought or sold in the market without affecting the asset’s price, is low.
Commenting on the why banks are being inhibited by lending to the consumers, Mr Mwanza said, “Most banks feel it is not time to lend [due to various challenges in the economy].”