MOU on bank charges, interest rates hurts banks

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ZIMBABWE’S economy has since 2009 been relying on credit lines from the African Development Bank and PTA Bank as the country failed to access funding from multilateral institutions due to debt overhang.

Victoria Mtomba

Experts say failure by the country to settle its debt arrears since 1999 has affected the country’s creditworthiness.

Zanu PF, however, blames economic sanctions imposed by the European Union and the United States for starving economic sectors of long-term funding.

The adoption of the multiple currency regime in 2009 has resulted in the Reserve Bank of Zimbabwe being incapable of carrying out its lender of last resort function.

The central bank requires $150 million to undertake this role, but with government coffers having dried up, Treasury cannot recapitalise the apex bank.

This has resulted in the productive sectors of the economy such as manufacturing, agriculture and mining accessing limited funding from African Development Bank and PTA Bank.

The PTA Bank has offered short, medium and long-term loans at less than 10% interest rate. The bank, since 2009, has channelled close to $500 million loans into the economy.

Outgoing Finance minister Tendai Biti last month said out of the $260 million drawn from the IMF special drawing rights (SDR), $36,5 million was channeled towards lines of credit.

In 2009, the IMF executive board approved a $283 billion general SDR to all 186 member countries.

Out of this, Zimbabwe was allocated $505 million of which $411,9 million was under the general SDR allocation of August 2009, while a special allocation of $93,1 million was escrowed pending the clearance of outstanding arrears to the Poverty Reduction and Growth Facility-Trust Fund amounting to $141,1 million.

As the economy relied more on funds from outside the country, that means the funds that were available on the market became expensive as well.

Currently, the interest rates range between 15% and 22%.
In a move to protect members of the public, the Reserve Bank of Zimbabwe (RBZ) this year signed a Memorandum of Understanding (MOU) with banks.

The signing of the MOU determines interest rates margins, a standardised format of disclosure requirements to ensure that participating financial institutions disclose all their fees and charges in a uniform manner.

Through the MOU, banks have to pay 4% on every $1 000 deposited for 30 days.

A local analyst with a local bank said control of interest charges brings in distortions in the market place.

“If there is cheap money banks will lend cheaply. The MOU show that the market is inefficient and deposits are very low, lines of credit are drying up and eventually the  control will shrink the income for banks. Which means it’s either there will be no profit for banks or banks will not continue lending to customers,” the analyst said.

The African Development Bank, in its monthly review for June, said no changes were noted in terms of a reduction in lending rates and increase in deposit and savings rates as was expected since the signing of the MOU between the RBZ and banking institutions.

“The operating environment is still tough for most banks, particularly those with fragile balance sheets. In addition, uncertainty surrounding national elections, among other factors, resulted in some banks actually cutting down on loans and advances. Banks and depositors were not willing to make long-term commitments,” the report reads.

Another analyst with a research firm said banks have to increase transactions or they can negotiate to nullify the MOU.

“They also need to reduce their cost of offering the same services now that they have lower charges and that’s done through seeking cheaper channels like e-banking and reducing branch network because it’s expensive,” the analyst said.

According to the Zimbabwe Independent, banks are likely to lose $73 million as a result of the MOU.

With deposits largely transient in nature, Zimbabwe cannot rely on inward-looking policy to drive the economy. Deposit base grew significantly from 2009 where it stood at $298 million to around $3,7 billion early this month.

The central bank says the short-term nature of the deposit base was restraining the growth pool of loanable fund.

1 COMMENT

  1. bank charges are too much, they should go down and people will regain lost confidence in banks, whats the use of depositing your 500 if after a year it is 0 balance from bank charges

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