Reserve Bank of Zimbabwe (RBZ) governor Gideon Gono last week accused banks of “robbing the ordinary man and woman on the street to capitalise our banks” while Finance minister Tendai Biti recently described activities in the sector as “voodoo banking”.
The statements came on the back of the unyielding stance that financial institutions seem to have adopted by charging high lending rates, high bank charges and virtually not paying deposit rates.
Some banks are charging interest off as high as 58% per annum. Some institutions are levying a monthly administration fee of $100.
To transact through the Real Time Gross Settlement system, depositors have to contend with up to $25 while inter-account transfers are attracting $5.
Repeated calls for banks to lower interests and bank charges have found very few, if any, takers at all.
Depositors are not being rewarded for keeping their money in banks.
With no interest on deposits, there are no incentives for depositors to keep their money in banks.
What is the point of depositing, for instance, $100 yet at withdrawal one can at most access $98?
Bankers are penalising depositors for keeping money in their banks.
This has made it difficult for banks to grow their clientele base, hence the unfortunate incidence of them “creaming off” the few that are already on their books.
There is no doubt that given a choice, most employees would opt to be paid in cash, but does it have to get to that?
The RBZ as the apex bank with an oversight role of the banking system, should crack the whip and force banks to toe the line.
Understandably critics would be quick to say the central bank cannot do much since it has limited control on money supply following the introduction of multiple currencies.
But one would also be quick to ask the effectiveness of moral suasion being employed by the apex bank.
In the last four years, banks have made most of their money through fee income, an indication that charges have beefed up their operations.
A key question to ask is, with such lending rates, what is then the difference between commercial banks and micro-finance institutions?
In his address to bankers last week, Gono said lowly-capitalised banking institutions were at the forefront of charging high bank charges and interest rates as they sought to stay afloat.
With such lending rates, how do we expect industry to be revived?
Several companies have had their properties auctioned as they get choked by high lending rates.
It is agreed that there is lack of long-term lines of credit, but should that be punishment for cash-starved companies?
While a decision to come up with a Statutory Instrument as once mooted by the RBZ outlining maximum charges might not be the best way to deal with the matter in a liberalised economy, this might be necessary if the banking sector fails to reform.
“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,” Gono said.
“Insolvent banking institutions and those with low capital bases have high propensity to indulge in adverse selection as they gamble for survival.
“Without quick reforms, an estimated $2 billion to $3 billion believed to be circulating outside the banking system would remain there.
It is, however, heartening to note that the Bankers’ Association of Zimbabwe (BAZ) acknowledges the existence of a problem and the need to revise downwards the punitive charges.
“I think we have been very much consumed with this matter. We have been looking at various options.
“Those 58% interest rates even from our investigations seem to be correct, but we are dealing with the matter to make sure that we align these charges and interest rates to what is reasonable and affordable to the banking public but at the same time making sure that the cost 9recovery mechanisms within the banking sector are also maintained,” BAZ president George Guvamatanga said.
“We do not by any way support penalty rates as high as 58% and cash withdrawals charges as high as $10 or $15.”
Members of the public wait for the day interests rates will be reviewed downwards and their deposits start earning meaningful interests.
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