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Clients enquiring over transactions in their account at a local bank and lending rates does not have to be so disproportionate. Zimbabwe averaged an inflation rate of less than five percent last year yet most banks paid interest rates of less than 5 percent to depositors during the same period. Additionally, the high bank fees or commissions ensured that even when a high rate is offered, service charges or fees would eat into that good rate leaving the depositor worse off. To understand just how disproportionate the fees or commissions are, one has to look at the composition of income for most banks. On average it would appear that fees or commissions which are not really the core business of banks constitute between 40 and 50 percent of the overall incomes. In one very curious case, a financial institution POSB earned about US$5 million from regular activities, that is its net interest income yet it received an additional US$15 million by way of commissions or fees. It is clear from this that bank charges are quite high in relation to people’s earnings and could possibly be the major reason behind the short term nature of deposits. The low interest rate on deposits does not help matters as it results in people opting to keep their funds outside the banking system. Savings outside the banking system do not help the economy in the end. Zimbabweans earn meagre salaries making them very sensitive to high bank charges. It is often reported that billions of dollars are circulating outside the banking system due possibly to the high bank commissions or fees. The 2012 budget shows that government now attempts to wade into this by amending the Banking Act thereby forcing banks not to charge the levies on deposits that do not exceed US$800. Already, bankers have expressed their unwillingness to abide by this latest announcement if the deliberations that followed the budget are anything to go by. It remains to be seen if government really intends on following through with the threat of legislating the bank charges. Bankers claim that the high fees are justified in the face of the short term nature of deposits. They also claim the extra costs associated with procuring alternative power in the face of incessant power shortages is factored into these bank charges hence the high commission charged. From the bankers’ perspective, interest on deposits will only improve once deposits improve in their tenors or maturities. So unless that happens, banks believe the current situation will remain and the liquidity scenario will continue to play out. However, the bankers’ position appears misplaced because it fails to articulate the chain of causality for the liquidity crisis. What the bankers claim to be the cause is in fact the effect of a combination of high bank charges and low interest rate on deposits. Only the reverse of what bankers think to be the solution will resolve the liquidity situation, interest earned by deposits rate must improve first so as to entice people to return to the banking system. Banks must also be willing to forgo the lucrative interest rates that presently prevail and maintain a small margin. Additionally, the exorbitant commissions must be slashed. Following through on some of these suggestions will inevitably result in banking becoming a convenient exercise and not a costly one as is the case now from the point of view of a depositor. It must be remembered that people still do not have full confidence in banks after seeing their Zimdollar account balances getting decimated by inflation before eventually disappearing when the economy was dollarised. While banks were not entirely at fault for that, an average person in the street still thinks that banks were responsible hence the onus rests with banks as well, in as far as rebuilding confidence is concerned. Also, the Central Bank has to refrain from making statements or policies that have the potential of destroying confidence. Withdrawal limits or controls on the movement of money must remain suspended in line with fiscal policies on the movement of foreign exchange. In the absence of a financial bailout from international financiers, this is probably the best and the only way confidence can be resuscitated. TP February 2013 Page 35
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