CUTS International Lusaka acting centre co-ordinator Simon Ng’ona said the country recently passed an elaborate competition policy and law that should create democratic markets not just in the banking sector, but in the entire economy.
Mr Ng’ona wondered why interest rates and most other charges charged by commercial banks are the only variables apparently not responding to the improved and sustained macroeconomic environment.
He said a single digit inflation rate should influence a reduction in some of the charges in the sector beyond what is pertaining irrespective of the claimed high bank operational costs.
“We prod the competition commission and the BOZ to diagnose the bottlenecks that halt the progressive realisation of the fruits of such a healthy, promising and lucrative sector and institute proper remedial measures that will help redress the situation,” he said.
Mr Ng’ona commended BoZ governor Caleb Fundanga for recently stating that low competition has characterised the banking industry in Zambia.
He said a snapshot of the banking sector shows that there is an average of 18 banks of which five are big banks with an average market share of 15 percent each (measured by their balance sheets).
He said the remaining banks have also managed to grab expansion opportunities and are providing a formidable or significant competition by any measure.
“Analysing the status of competition using the number of players as a variable to measure, one is tempted to conclude and rationally assume 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,” he said.
Mr Ng’ona said there has been an increase of banks and banking products and services such as automated teller machines, mobile banking which steers non-price competition.
He, however, said the source of worry has remained with the pricing structure of these services which hinge on the price competition variable.
He said currently, it is only the banking sector in Zambia whose operations appear contrary to the laws of supply and demand.
“Despite a surge of banking services and products, on the back of a relatively stagnant demand side, prices or banking charges have remained high,” he said.
He said a general increase in supply at each and every level of demand of the banking services was supposed to trigger a price decrease to promote and increase consumption of banking services and yet what is exhibited are high and stick charges that have failed to decline.
He said the real and nominal gross domestic product has been growing on the back of a relatively constant velocity of circulation meaning money supply was supposed to increase proportionally.
Mr Ng’ona said one is tempted to think banks have to some extent sabotaged the economy by failing to inject enough liquidity in circulation due to high interest rates.
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