Bank Adjudicator warns against impulse borrowing

Staff Writer | Wednesday January 13, 2010 00:00

 

Presently, the bank rate is 10 percent, having been reduced by accumulative 5.5 percentage points during 2009 as inflation cooled off during the year.

As a result, the prime rate offered by commercial banks declined consequently - to 11.5 percent from 17 percent in December 2008, offering debtors relief during a particularly difficult 2009.

However, in an interview yesterday, Maotwanyane cautioned consumers against taking advantage of the lower interest rates to make irresponsible borrowings.'Interest rates have declined and people would obviously want to borrow, but they must only do so when it's necessary.

'If you borrow when interest rates are down, when they go up, you could find yourself in difficulties. The best thing for consumers to do is save,' he said.

The Bank Adjudicator explained that many consumers are ignorant of the provisions of the loan contracts they have with banks. As a result, such consumers are often shocked to discover upward reviews in their monthly repayments, as the bank makes adjustments in line with the prevailing interest rates.

'The repayment amount is made up of the principle and the interest rate.'According to these contracts, the repayment amount will vary as the interest rates vary as well. Consumers should get into the habit of reading contracts so that they fully understand what is contained in them.

In addition, they must always check their monthly statements when they receive them, so that if there are any problems, these can be addressed immediately,' said Maotwanyane. National indebtedness has emerged as a threat to the country's economic stability, with households accounting for close to 60 percent of total loans by banks, or P9.6 billion in 2008.

This year, the Office of the Bank Adjudicator in collaboration with the nine commercial and merchant banks operational, plans to launch a Debt Counselling and Rehabilitation initiative targeting indebted consumers.

According to Maotwanyane, the initiative is part of a slew of public education efforts aimed at lifting Batswana out of heavy indebtedness, encouraging wise borrowings and savings.

'Sometimes consumers hide their indebtedness from other banks and continue taking up loans. The idea is to help consumers so that they don't pay a large number of loans to different banks; instead one bank takes over and they only pay that one,' he said.

With most companies implementing various forms of cost-cutting measures last year amid the economic squeeze, many consumers found themselves either unable to service their loans or in need of additional funding to survive the year.