Banks have requested a six-month relief to implement government’s proposed reforms, which among other measures seek to lower fees and compel banks to pay an interest on deposits.
Report by Staff Writer
In his national budget statement last year, Finance minister Tendai Biti said banks should, starting this month, not levy fees on deposits of less than US$800, pay interest on deposits of at least US$1 000 held over 30 days at 4%per annum.
But the Bankers Association of Zimbabwe (Baz) argues its members, whose income ratio is 40%, will incur huge financial losses.
Analysts say Biti’s proposals are a form of price control and history shows that market forces cannot be controlled without dire consequences. If anything, margins have been trimmed and this will work against efforts being made by players to mobilise resources to meet the new capital requirements set by the Reserve Bank.
In a position paper, Baz says it needs a temporary suspension in order to allow banks to change their models to the new requirements.
The association notes the solution lies in changing the banking model to one which promotes and encourages card usage and e-banking.
“Naturally, this will need time and resources to allow banks to change to this model, which will phase out most of the bank’s brick and mortar operations,” Baz said.
However in the interim, the association is proposing a special low-cost account to be called Zim Transact, which will be for maximum deposits of US$300.
Banks are proposing the creation of a spread fixed deposit account for 30, 60, 90 and 120 days to attract a higher rate of interest depending on the quantum. They also want a higher spread to clients with a high-risk profile or those who borrow to purchase luxury items on the spread of loans; capitalisation of the RBZ to perform lender-of-last-resort function; that the Finance ministry continues issuing Treasury bills but at market rates; EcoCash and other similar mobile banking providers be included to ensure a level playing field.
The association said 70% of individual banking customers earn less than US$800 per month which would imply free banking for a majority of Zimbabweans and banks currently generate 60% of their income from loans and advances, and 40% from non-interest income.
“As at September 30, 2012 banks’ overall profits were in the region of US$90 million and therefore a reduction of US$72 milion revenue annually will create severe viability and sustainability challenges for the banking sector,” Baz said.
Concerns were raised that because of the low level and transitory nature of deposits, banks would not be able to generate sufficient income to meet operational costs and absorb the level of non-performing loans, which currently stand at 13% if the spread on loans has a ceiling.
In his budget statement, Biti noted 40% of internally-generated money comes from Old Mutual and Nssa and should not exceed 10% per annum when being on-lent.
However, Baz argues many banks do not access funding from Nssa and Old Mutual and therefore it is not correct to use their rates as the benchmark for the likely movement of rates.
Baz said the 4% interest on term deposits of US$1 000 is a positive development, which will improve banking habits and instil a savings culture. Baz members are currently paying 2-10% interest on term deposits.
Baz says it will implement a self-regulating framework to be reviewed in conjunction with the RBZ and the Finance ministry on a quarterly basis to ensure bank charges and interest rates are at acceptable levels.
The banks can not be serious…why not clean house first and then approach the minister with the proverbial clean hands?
chris i used to respect your comments but honestly kana washaya zvekutaura juss keep quite. This issue is very sensitive, there is nothing to come clean about. He should just set minumum and maximum charges. If he doesnt the banking sector collapses and what then.
Don’t budge Honourable Minister! These crooks have amassed lots of wealth using usury and poor Economics. Set monitoring teams to do surveillance in case they do not comply. These banks have been reporting profit as high as 400 % through unorthox economics.
Banks are milking away our money, charging large sums for giving them our money. let these measures to regulate banks be done asap
We the banking public demand that the new regulation be back-dated to 1st February 2009 when the economy formally dollarised.
I am happy that Biti has finally woken up. Please dont back track on this new regulation.
These bankers are very selfish. Ndivo vega vasingade kuita loss. If I put $100 into a savings account and leave it for one year, by year end all of it would be eaten by the bank of today. Saka the depositor ndiye aita loss and the bank has taken your free money for lending it out at high interest and refused to give it back to you. Have the bankers ever wondered why the general public hates them so much.
When the economy is not doing well, all sectors of the economy should be affected, but in Zim , the industries are closing due to undercapitalisation but the big banks are reporting massive increase in profits , year after year. Zim banks are greedy vultures preying on our dying industries.They don’t care about the state of our industries, they selfishly care about their profits.
They should earn a bulk of their money through lending and not through bank charges. Some banks are reluctant to loan out because they can make easy money through bank charges. If the controls by Biti are implemented, we are likely to see the banks loaning out more(coz the will be little money to be made from bank charges). The controlled interest rates will result in the distressed companies getting affordable loans. Small rogue banks(with poor corporate governance) will close or merge and that would be good for the stability of the financial services sector. We dont want the Century bank scandals again in Zim.
Thank you.
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