Small businesses still struggling with sky-high interest rates

• Data shows small business interest rates have little budged compared to loans to big corporates

By the end of July, the licensed commercial banks were charging in the north of 20 percent for their loans, specially to the small businesses, notwithstanding the policy rate cuts amounting to 450 basis points by the Monetary Board of the Central Bank, in June and July.
The data showed that by end-July, the average weighted new lending rate offered by the licensed commercial banks was as high as 19.30 percent, which prompted the Central Bank to issue an order last week to force the banks to slash the lending rates. 
The Central Bank last week held the policy rates at their current levels of 11.0 and 12.0 percent, as they saw room for the market lending rates to adjust downwards, without further rate cuts. 
Small businesses

The lending rates have proved quite stubborn, as they had come down only a little over 2 percent, from 22.42 percent in July, last year.
However, official inflation has come down tenfold from its peak of around 70.0 percent in September, last year, despite the cost of living staying high.
At the same time, the risk premium attached to domestic debt restructuring has come off.
It appears that the sky-high lending rates are the only thing that has not come down significantly.
After repeated requests to the banks to cut the lending rates to enable credit flows to the real economy, the Central Bank turned tough last week and imposed caps on pawning, pre-arranged temporary overdrafts and credit card rates.
It also ordered the banks to bring down their lending rates by 250 basis points by the end of October and by cumulative 350 basis points by the end of December from their end of July levels. 
“The downward adjustment in market lending interest rates has been disproportionate to the reduction effected in market deposit interest rates,” the Central Bank said last week. 
However, the prime lending rate, which measures the average rate of loans offered to the banks’ prime clients, had responded faster than the rest of the lending rates.

For instance, the prime rate fell by around 10.0 percent to 15.59 percent last week from a year ago. 
This reflects that the benefits of the lowering rates are only still enjoyed by the big businesses, which anyway have the financial muscle to withstand shocks but not by the small businesses, which were pushed to the brink, first by the pandemic and then by the economic crisis and sky-high interest rates.