Elsewhere, we carry a story on bank charges and why banks are asking their clients to pay so much. The debate on bank charges has often been emotive but largely bereft of tangible solutions. It is therefore worth to explore the state of affairs in the financial services sector with a view to finding answers.
After the adoption of multiple currencies, Zimbabwean banks shifted from traditional banking –– taking deposits and lending and making money from there –– in a bid to stay afloat in an economy characterised by low deposits and tight liquidity.
This has forced banks to target account-holders as a source of income. Instead of the conventional system where John deposits $20 in Bank X savings account paying 1% interest and Jack borrows $20 at 4% interest from the same bank to buy a car, banks are now charging high costs on transactions instead of making money from interest from loans.
Non-funded income should not constitute the bulk of the banks bottom-line earnings. Rather, the bulk of the money should come from pure banking. Banks should come up with other innovative products that encourage and stimulate a return to banking or create synergies to boost critical masses instead of punishing depositors. If this goes unchecked, the majority of the banking public will have no choice but to resort to traditional “pillow banks”.
Banks should realise that Zimbabwe lost a culture of saving in the hyper-inflation period and cannot be discouraged by high bank charges. It is common cause that liquidity is tight in the market. As such, even a million dollars cannot afford to shift to the informal market.
A quick look at other businesses that have had to look at synergies should be a pointer to banking executives.
Other companies are creating business synergies in a bid to gain critical masses.CBZ Holdings and United Builders Merchants (UBM) announced a deal that will see the financial; services provider advance loans to prospective home builders of at least US$5 000 payable in five years. In return, the loan holders will only buy building materials from UBM. Analysts see this development boosting retail building material sales and higher turnover for UBM of about US$18 million. CBZ on the other hand will also increase its loan book and effectively increase its interest income.
Econet and AFRE, an insurance company partnered and introduced a life assurance product –– Ecolife. With this product, Econet clients can get life cover on condition they buy airtime of at least US$3 per month consistently. Econet management hopes the synergy will help retain subscribers within the network. AFRE on the other hand benefits from the premiums obtained buoyed by Econet’s huge subscriber base.
Despite the state of liquidity and the economy, it is about time banks stopped over-relying on non-funded income.
More worryingly, will the same institutions lower the charges once the liquidity situation and deposits improve?
Bankers Association of Zimbabwe president John Mushayavanhu told this paper this week that bank charges in Zimbabwe were “much lower” than what the region was charging. This was indeed a low attempt at justifying the costs.
“That is the general perception but our bank charges are much lower that what other countries in the region are offering,” he said.
But figures obtained this week showed that banks have astronomically increased bank charges, shortchanging depositors.
The central bank should now step out and assume its status and come to the market with papers and save consumers.