Suspected Cartels in banking sector on Zambia’s Competition and Consumer Protection

Jun 18, 2012 | Cynthia Mukwasa Bwalya

There has been wide spread concern over the high levels of the rate charged by commercial banks on loans to customers in Zambia over the years. This pushed Zambia’s Competition and Consumer Protection Commission to commence investigations on all commercial banks countrywide which are suspected to have formed cartels to offer uniformed interest rates to suspecting customers.

Commission director in charge of consumer and Public Relations Brian Lingela said the commission was probing some commercial banks on allegations of them being involved in a cartel aimed at setting uniform lending rates in Zambia.
However, the Bank of Zambia, BOZ recently announced a number of measures aimed at streamlining the cost of funding for commercial banks with a view of making it possible for them to effect meaningful reduction in their base lending rates. The move brought about renewed hope particularly in the private sector, as the high interest rates have had consequential adverse effects on the affordability of growth enhancing credit by a number of productive sectors.
The decision involved reducing the statutory reserve ratio on both Kwacha and foreign currency deposits from eight percent to five per cent. A number of banks responded to the Central Banks move by reviewing their base lending rates,

which were ranging around 23 to 18 percent, bringing them down to about 16.5 percent.
The Competition and Consumer Protection Commission investigations into banks involved in a cartel were launched before commercial banks responded to the central bank‘s reduction. The Bankers Association of Zambia described the move by banks to reduce lending rates as positive adding that the rates will continue reducing. However, the levels of reductions are said be less than expected with some people calling for a single digit rate. Reduced lending rates are expected to promote growth of Micro, Small and Medium Enterprises in the country, as they would be able to access loans from commercial banks thereby increasing their productivity. This is why suspicions of banks forming cartels to doctor lending rates in a developing economy such as Zambia’s cannot be ignored.
Competition and Consumer Protection Commission said investigation process has been concluded and findings were submitted to the Board which has to determine whether there is a case or not “We are looking into the cartel issue in the banking sector and the focal point is the setting of similar interest rates and findings of the report will be publicised once it is finalised.” Said Mr Lingela. He said cartels would be an area of focus for the commission in 2012, to ensure that any uncompetitive business tendencies were dealt with according to the Competition and Consumer Protection Act. According to section 9 (1 (A) of competition and consumer protection Act Number 24 of 2010, the law prohibits horizontal agreements between enterprises. The Commission is of the view that the Banking Sector needs effective and real competition. From its observation of the market, the Commission said banks on the market have not really addressed the demands of the market. It said there are distortions in the market which need to be addressed and to address these a more detailed study has to be undertaken. The central bank has introduced a BOZ Policy Rate, with effect from April 2, 2012.
A Policy Rate is utilized to influence monetary and credit conditions in an economy and the bank of Zambia uses this as a market benchmark for determining interest rates. This Policy Rate will, in this regard, allow the Bank of Zambia to signal an increase or a decrease in the price of credit in the market.
To announce changes to the Policy Rate, the Bank of Zambia is now issuing a monthly communiqué. Deputy governor operations Dr. Bwalya Ngandu says the central bank will continue monitoring developments in the economy and stand ready to effect any necessary policy changes.