The local banking sector, like other sectors is also experiencing the similar complications due to the pandemic. Some of the banks have resorted to closing identified branches with clients encouraged to transact online.
The pandemic has also forced the commercial banks to resort to debt relief measures of up to three months to minimise harm on the side of the clients. In a quest to maintain growth and economic development as well as keep an eye on inflation, the Central Bank of Lesotho (CBL) has also seen a sledge cut on its repo rate from 6.25 percent in March to 3.75 in May.
The CBL’s rate has dropped again from 3.75 in May to 3.50 per annum in July. The rate, set at this level, will ensure that the domestic cost of borrowing and lending remains aligned with the cost of funds elsewhere in the regions, the CBL has said. Due to the continuous decrease in the CBL rate, commercial banks are also forced to lower their prime lending rate to keep the equation balanced.
The Prime Lending Rate is the rate of interest that commercial banks will charge their clients when issuing a loan, such as vehicle finance or a home loan. It is the default interest rate that consumers are charged when borrowing money. Local financial experts say while the changing of the rate goes in line with economic development, it may also eat into banks profitability, resulting into a negative long-term effect.
Since February, Lesotho Post Bank has been decreasing its Prime Lending Rate from 11.00 percent in February to 8.25 percent in May. Effective from July 30, the bank further decreased the lending rate from 8.25 to 8 percent. Similarly, Standard Lesotho Bank has been doing the same. In May, the bank reduced the Prime Lending Rate by 50 basis points, from 9.00 to 8.50 percent. Again in July the rate was decreased by 25 basis points, moving from 8.50 to 8.25 percent.