Thursday, July 7, 2022

Barclays Bank slaps borrowers with a rate hike

Barclays Bank of Botswana Limited, the second biggest commercial bank by market capitalisation on the Botswana Stock Exchange (BSE), will, with effect from May 13, slap its customers with an interest rate hike on unsecured loans.

The hardest to feel the wrath of the increase will be low income earners whose Barclay Loans will increase by 1.5 percent to 22 percent from the previous 20.5 percent. Prestige loans will also go up to 20.75 percent while Premier loans will attract an interest rate of 16.25 percent.

The bank recently floated advertisements announcing the new rates.

The new rates will, however, be slashed by 0.5 percent on the back of the April 30 Bank of Botswana Monetary Policy Committee decision that reduced the bank rate from 9.5 percent to nine percent, thus rendering commercial bank prime lending rate to 10.5 percent.

Responding to Sunday Standard enquiries on the hike, the bank’s spokesperson, Grace Mosinyi, confirmed the interest rate review.

“Yes, Barclays Bank of Botswana has reviewed its rates to 16.25 percent for Premier customers, 20.75 percent Prestige and 22 percent Barclay Loan. Even with these changes, Barclays Bank of Botswana continues to give customers competitive rates in the market. We continue to encourage customers to use all lending facilities for activities that add value to their lives,” said Mosinyi.

The review has, however, taken some economists and analysts by surprise, especially that, generally, interests rates in Botswana are viewed as too high.

Independent economist and Econsult managing director, Dr Keith Jefferis, is among those who have been surprised by the upward review.

“This is very surprising. Interest rates are already too high. May be the increase is meant to compensate for losses and defaults. If they have a high rate of default, they may use the hike to curb borrowing. The other reason for the hike could be that the bank is finding a high demand for its products. Consumer credit has been heating and the bank may be trying to slow the tide,” said Dr Jefferis.

He explained that when one views the review against the Bank of Botswana Monetary Policy Committee (MPC) decision of April 30, of a reduction of the bank rate by half percentage point to nine percent, the move “is going against the BoB’s accommodative monetary stance. It is sending conflicting signals. Credit in Botswana is very expensive. Barclays is taking advantage that households are not bothered by interest in their demand for loans,” said the economist.

Another analyst, who was not aware of the review, said the move is shocking.

“I am shocked. The increase could be prompted by low profit margins. But, on the whole, this is not expected. I am terribly shocked if what you are saying is true. One will have to appraise himself of the matter before making a comprehensive comment,” said the analyst.

Another analyst, who was equally unaware of the review, said he was surprised that any commercial bank could be headed in that direction.

“Are you sure it is an upward revision? Is it not a downward revision? One will have to find out the bank’s reasoning before commenting,” he said.

Announcing its recent monetary policy stance, the central bank said that “the current state of the economy, where output growth is below potential and characterised by high unemployment, could be reignited by a non-inflationary stimulus. Assumptions on both the domestic and external economic outlook and the inflation forecast suggest that a more accommodative monetary stance, at this time, is consistent with the achievement of the bank’s 3 ÔÇô 6 percent inflation objective in the medium term”.

The central bank said following the reduction of the bank rate, commercial banks are expected to ensure that savers generally earn positive real rates of return on their savings.


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