Benchmark interest rate in banking remains unchanged in July

Photo: O País

The banking sector has once again kept the benchmark cost of money unchanged. The Prime Rate of the Mozambican Financial System remains fixed at 15.50% during the month of July, prolonging a tight financing scenario for families and businesses at a time when access to credit continues to be one of the primary challenges for the economy.

As usual, the interest rate was announced on June 30 by the Mozambican Association of Banks (AMB) through a statement. The document shows that the Prime Rate—which results from the sum of a Single Index of 9.30%, calculated by the Bank of Mozambique, and a Cost Premium of 6.20%, defined by the association itself—does not change.

The maintenance of the rate means there has been no relief in the cost of money for those intending to seek bank credit. On the contrary, financing conditions remain tight, both for families seeking housing or consumer credit and for companies that depend on banks to finance investments or reinforce cash flow.

Although the Prime Rate is 15.50%, this does not correspond to the final rate charged to customers. On top of this percentage, each bank applies a spread, defined according to the risk of the operation, the customer’s history, and the type of financing requested. In practice, it is this margin that varies the effective cost of credit among different financial institutions.

The numbers released by the AMB show notable differences between banks. In housing credit, for example, the spread varies between 1%, applied by Standard Bank, and 6%, applied by Vista Bank and First Capital Bank. This means that, depending on the institution, the cost of credit for home purchases can easily exceed 20%.

The differences repeat in consumer credit and corporate financing. Some banks apply relatively low spreads, while others present significantly higher margins, making the cost of credit significantly more expensive. This reality reinforces the importance of comparing conditions offered by different institutions before contracting a loan.

For the business sector, the permanence of the Prime Rate at its current levels continues to represent an obstacle to investment. In a context where many companies seek to expand production, acquire equipment, or increase working capital, the high cost of credit ultimately reduces investment capacity and increases financial burdens.

Families also continue to feel the effects. Anyone intending to buy a house, acquire a vehicle, or finance personal expenses will continue to face high installments, a situation that limits consumption capacity and conditions the family budget.

In the statement, the Mozambican Association of Banks recalls that the Prime Rate is “the single benchmark rate for variable interest rate credit operations,” clarifying that the rate applied to the customer results from the sum of the Prime Rate and a spread defined “by evaluating the risk of each specific credit category or operation.”

The association also explains that the Single Index is calculated monthly by the Bank of Mozambique based on operations carried out in the interbank money market, while the Cost Premium is updated quarterly and reflects factors such as Mozambique’s sovereign risk, the non-performing loan ratio, cured credit, and the reserve requirements demanded from banks.

Another aspect that stands out from the statement is that, despite the monetary policy rate (MIMO) being fixed at 9.25%, the benchmark rate used by banks remains well above that level due to the weight of the Cost Premium, an indicator that incorporates the risks associated with banking activity and the country’s economic environment.

The AMB further underlines that the Agreement on the Single Index of the Mozambican Banking System aims to make the formation of interest rates more transparent and improve the transmission of monetary policy. However, for customers, the immediate effect remains the maintenance of expensive credit, at a time when companies and families are waiting for more favorable financing conditions.

As long as the indicators that determine the benchmark rate do not show a favorable evolution, bank financing is expected to continue representing a significant burden for anyone intending to invest, expand a business, or carry out personal projects.

Source: O País