High transactional charges foment re-dollarisation

Melody Chikono

LACK of uniformity in bank charges is dampening the drive to embrace plastic money and is causing havoc in the economy.Banks recently increased their bank charges by over 100%, making it difficult for an ordinary person to transact electronically as they have to bear the brunt of the punitive 2% tax.

The charges are ranging between ZW$7 and ZW$10 per transaction above ZW$10, which basically implies that ordinary people will be forced to buy a loaf of bread for more than ZW$28.

While consumer lobby groups have raised concern over the exorbitant point of sale (POS) charges, economists say this has been increasing pressure on the scarce local unit while promoting the use of the US dollar, which attracts no cost.

The 2019 Banks and Banking Survey, organised by Alpha Media Holdings, revealed that most of the banks were now relying on non-funded income, implying that they have diverted from their traditional business of lending.

While Zimbabwe is working towards a cashless society, market watchers say this is far from reality as the situation on the ground is pointing the opposite direction. Normally, developed nations are synonymous with cashless transactions.

Economists who spoke to businessdigest said although banks are also bearing the brunt of a non- performing economy, it has left the consumers in a difficult position as they are made to absorb the costs.

While the different POS charges are driven by the banks’ cost structures and cost of funds, market watchers say the financial institutions have in the past taken advantage of a re-dollarising economy.

Economist Persistence Gwanyanya this week said the situation where the POS charges increase steeply results in high demand for cash. “Whilst we have the bank rate, banks are not respecting it as they have different cost of funds and costs structures. Historically, during this dollarisation period banks tend to take advantage of the situation. In this case, the customer is just a price taker as there are no alternatives and there is limited cash. The danger is that its aiding re-dollarisation of the economy,” Gwanyanya said.

This is also happening at a time banks are de-risking with an average loan-to-deposit ratio of around 40%.“Government should increase the cash in the economy, enough cash to support the activity in the economy, say to about 10% to 15% from the current levels of 3%. This will reduce reliance on POS and more manageable for the ordinary person. Let’s have an improved business environment that will make it viable for lending and for productivity. This will also mean that banks will return to their traditional business of lending,” he said.

Another economist Prosper Chitambara said government’s provision of viable infrastructure will ensure ease of doing business in the area of energy and reduce the cost structure of banks.

“Charges are largely driven by different cost structures across the sector as more banks are more efficient than others. This then determines the percentage they charge. But these costs are now the key drivers in driving the diversification from the formal market to informal market as less and less people embrace banking. There are no alternatives and as banks are impacted negatively by the economy and the customer is heavily impacted.” Chitambara said
“Government should avail viable sources of energy, that is reliable infrastructure. It is therefore going to take Zimbabwe a very long time to achieve a cashless society status. The more developed a country is the more usage of plastic money. We are still far from that.”

Zimbabwe, which is highly informalised, is once again self-re-dollarising barely a year after the ban of the multi-currency system.

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