‘Punitive bank charges discourage savings’

LOCAL banks are milking account holders through high charges to boost their income and support the infrastructure they put in place when the economy was faring better.

Individuals and corporates are forking out between US$25 and US$50 monthly in bank charges, far above regional averages of below US$30.
But the Bankers Association of Zimbabwe Baz says local bank charges are in line with regional charges. Figures obtained by businessdigest from local banks last week show that an individual is charged between US$1 and US$5 for a single withdrawal while companies pay up to US$9 to be issued with a draft/RMO.
Telegraphic transfers cost between US$15 and US$30 for both corporates and individuals depending on the amount involved. The same amount is charged for deposits received by telegraphic transfer.
Asked if local bank charges were not too high when compared to the region, Bankers Association of Zimbabwe (Baz) president John Mushayavanhu said local charges where competitive.
“As Baz, we have done a study of bank charges in the region and overseas and I can confirm to you that our charges are very comparable to the charges prevailing in the region,” he said.
“What we are focusing on now is continuous investment in electronic banking, which reduces cost. On interest rates charged by banks, we are working, through moral suasion within the association, to reduce the disparity on interest rates being offered and/or charged by banks.
“This will go a long way in minimising the underlying contagion effect of arbitrage opportunities associated with the disparity,” Mushayavanhu said.
Local banks are also charging as much as US$15 for a single deposit.
The average regional charge for the same transaction is US$7.
Some banks are not charging for maintaining clients’ accounts, but others are levying US$3.
Corporates are being charged between US$8 and US$12 per month for monthly account maintenance. FCA inter account transfers cost between US$1 and US$5 depending on the bank for both individuals and corporates.
Service charges for salary processing tariffs cost between US$1, 50 and US$4 per entry for manual salary payments. Unclaimed salaries cost between US$4 and US$7.
Companies are being charged between US$7 and US$10 per payroll for late salary submissions.
Most banks have not set a charge for intermediated money transfer tax.
Facility negotiation fees for companies cost 5% of the value of the overdraft or loan. Between US$4 and US$8 is charged for stop orders.
Economist David Mupamhadzi on Tuesday however told businessdigest that  bank charges in Zimbabwe were punitive, and discouraged people from using formal channels for savings,  a situation that is undesirable especially given the liquidity problems that the economy is facing.
“Banks should play a leading role in mobilising savings across the whole country through offering attractive returns, however in the case of Zimbabwe this is not happening because of the high bank charges and the low returns on deposits,” he said.
“Most banks in the region do not use bank charges as a main source of income, a situation which is prevalent in Zimbabwe. In South Africa for example high bank charges are levied on people who withdraw huge amounts of cash, as a way of discouraging people from withdrawing huge amounts of cash,” Mupamhadzi said.
He said people were encouraged to use internet banking and plastic cards instead of carrying cash because of the high rates of crime.
“The high bank charges are not justified. There is need for the banks to restructure their business models in line with the reality on the ground. There is no way banks can maintain the same infrastructure, and staff, in this current environment as they had a few years ago,” Mupamhadzi added.
He said instead of doing “cosmetic adjustments, there is need for banks to take tough decisions on issues like infrastructure, number of employees and benefits, in light of the volume of business”.
“There is need for banks in Zimbabwe to diversify their sources of income, than relying on the bank charges to carry their high operating costs,” he said.
He said the proposed use of e-banking was a step in the right direction, and is in line with developments in the region and beyond.
Accounts closed within six months are attracting a fee of between US$18 and US$25, while reactivation of a dormant account costs between US$20 and US$25. Services for bonds guarantees, securities and indemnities and bills range between 5% and 10% of the amount at hand.
Charges for letters of guarantee, and guarantees are between 4% and 6% of the amount involved. Letters of credit for foreign inward cost US$75 per credit. Foreign outward for commercial banks cost 10% of the amount being transacted.
Farayi Dyirakumunda, an executive director of African Investment Markets said, “Banks typically derive their income from a combination of interest income as well as non funded income which includes bank charges.”
“The charges are somewhat justified given the cost structures prevailing in the banking institutions,” he said
“Given the subdued income from the core lending activities, fees and commission income have been maximised to boost overall profitability but this will gradually correct itself in response to market forces and technological advances. Fees and service charges will however remain an integral part of all banking institutions’ income,” said Dyirakumunda.
Bankers interviewed last week said banks were currently making money from loan portfolios but given the uncertainty in the deposits levels, they were becoming prudent by writing smaller percentages of loans so as to manage the liquidity risk.



Paul Nyakazeya