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Reducing industrial lending rates to enthuse economy |
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Wednesday, 05 March 2008 |
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Over the past decade, despite an astounding growth in excess liquidity in the banking sector, industrial expansion in the country’s economy has been weak due to a number of factors not the least of which would be high lending rates. While an influx of cheap imports have corroded the financial viability of a great many local industries, high lending rates and a perceived reluctance within the banking sector to be exposed to the risks that medium and large industrial projects pose, has further added to the slowdown. Against this backdrop, we believe that a lowering of rates on industrial lending as well as the banks’ proposal to cut service charges, which will no doubt enthuse exporters, will have a positive effect on industrial expansion and job creation within the economy. It is important to underscore that the government must play a dominant role in creating more conducive conditions for, and minimising risks to, industrial investments as this is the only way that the country will be able to address its chronic unemployment and poverty. Due to the pragmatism that the banks have shown in this respect, perhaps the government should extend a quid-pro-quo overture by considering the request for a less stringent corporate tax regime for commercial banks. Currently, these banks have only between 20 – 25 per cent of their operating profits left over after taxes and other mandatory provision payments, to distribute among their shareholders. Whereas companies in other sectors pay a flat 30 per cent corporate tax, banks are governed by a different tax regime which imposes a 45 per cent tax on operating profits and additionally requires them to devote portions of their leftover profits for reserves with the central bank. We believe that while such provisions are in the interests of depositors, the government could allow the banks a tax leeway that does not seriously imperil its depositors.
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