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Gono takes on ailing banks

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Reserve Bank of Zimbabwe governor Gideon Gono says lowly capitalised banking institutions are at the forefront of charging high bank charges and interest rates as they seek to stay afloat.

Addressing bank executives last week, Gono said there was a relationship between capitalisation levels and interest rates charged by various institutions.

The central bank chief said poorly capitalised institutions often resorted to charging higher fees to compensate for low levels of business.

His statement came as the apex bank started pushing for higher minimum capital requirements to strengthen the country’s fragile banking sector.

Gono said some well-capitalised banking institutions had started taking initiatives to reduce the level of bank charges through the introduction of special accounts where clients were not levied charges.

“On the contrary, it has been noted that high bank charges and high lending rates charged by some lowly capitalised banks are a form of ‘tax’ levied by the institutions on vulnerable members of the public in order to supplement their meagre capital levels,” he said.

“Insolvent banking institutions and those with low capital bases have high propensity to indulge in adverse selection as they gamble for survival.

“These institutions may be compelled by circumstances to pay above market rates for deposits, as well as extend credit at usurious lending rates to borrowers with no realistic prospects of honouring their obligations.”

Official figures showed that monthly administration charges by banks ranged from $2 to $100 per month.

“We cannot continue using a Zimdollar mentality and a Zimdollar interest rate and Zimdollar charges,” Gono said.

He said high bank charges eroded confidence in the banking system leading to financial disintermediation, where economic agents kept their money outside the banking system.

An estimated $2 billion to $3 billion is believed to be circulating outside the banking system.

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