Mboweni troubles banks

Johannesburg - Bank heads have called for an urgent meeting with Reserve Bank governor Tito Mboweni, following remarks by the latter implying that banks' prime lending rates are too high.

During a forum on monetary policy review last week Mboweni interrupted a presentation by Dr Gregg Farrell to censure banks about the wide gap between the repo rate and the prime lending rate.

The difference between the repo rate, at which the Reserve Bank lends to commercial banks, and the prime lending rate, the reference rate at which commercial banks lend to their clients, is running at 3.5 percentage points.

It's time that South Africans all protest and plead for lower interest rates, declared Mboweni over the wide disparity. He added that moral suasion over the past ten years has not worked.

"We sent a letter to Mboweni to request a meeting to find out if we should hold a public debate on this," declares Banking Association (Basa) chief executive Cas Coovadia.

He was not prepared to comment on Mboweni's remarks before a meeting is held.

"We don't understand what [Mboweni] was saying," he observed.

Standard Bank SA chief executive Sim Tshabalala reckons that moral suasion has always worked.

"Moral suasion [by the central bank] is very important [for the banking industry]," he continued. "We take the Reserve Bank and Mboweni very seriously."

He said this was because it was banks' job to carry out the Reserve Bank's monetary policy.

During the forum Mboweni also said that banks should rethink the difference between the repo and prime rates, and asked if a little competition between banks might not be a good idea.

According to Tshabalala fierce competition certainly exists between banks.

"We compete with banks as well as with money-market funds and unit trusts, which increases the cost of taking deposits, in terms of the interest that banks have to pay," he explained. "The broad public negotiates vigorously with banks for loans at rates below prime."

Last week readers phoned Sake24 to complain that banks had fixed newly negotiated finance costs at prime plus, whereas they had previously been below prime. "The National Credit Act obliges banks to re-examine clients' risk profiles," says Coovadia.

Tshabalala points out that in terms of the Basel code for banks a bank has to hold a certain level of capital against a clients' loan. Should a client's risk profile deteriorate, such as because of cash-flow problems, the bank is required to hold more capital against it.

"Since September and October last year long-term financing has become more expensive for banks," Tshabalala explains, with reference to the larger amounts of capital that banks now need to hold amid the global financial crisis, as clients' risk profiles worsen.


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