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scrapping bank charges on short-term deposits.

Banking had become a nightmare, with individuals preferring to carry out cash transactions for fear of being charged exorbitant rates for somewhat ambiguous services.

I personally had a nasty experience with one of our local banks. Having left US$150 in my account for a two-month period, I took a US$40 knock on that amount.

“What for,” I asked.
“Bank charges,” that’s all I got.
There is no doubt that bank charges are high. A recent survey showed that bank fees average US$2 to US$5 for every withdrawal that is less than US$200.

It means then that a person earning around US$200 per month, and making two withdrawals from the bank incurs bank charges amounting to 15 percent of the total deposit.
Compare this to neighbouring South Africa where, for instance, ABSA charges R3,85 per withdrawal with an additional charge of R1,10 per R100.

Nedbank similarly charges R3,50 for withdrawals plus R1,20 per R100 withdrawn, and Standard Bank charges R3,90 per withdrawal plus an additional 1,17 percent of the value drawn.
A happy chird was struck when, in presenting the 2013 National Budget recently, Finance Minister Tendai Biti announced: “No bank charges should be levied on deposits up to a maximum of US$800,” he said.

Added the minister: “Any deposit of US$1 000 and above held over a period of at least 30 days and above should attract an interest of at least 4 percent per annum.”
With these measures expected to take effect on January 1, 2013 this is certainly good news for the aforesaid 99,9 percent of Zimbabweans. But what of the 0,1 percent — the bankers?
It is only fair to hear them out.

What is abundantly clear is that the local banking sector has been operating in “unusual mode”.
Fundamentally, banks cannot make money until they have our monies. So it is telling the nonchalant attitude Zimbabwean banks had over financial inclusion.

In an ideal banking environment banks use depositors’ money to make loans. The amount of interest the banks collect on the loans is greater than the amount of interest they pay to customers with savings accounts — and the difference is the banks’ profit.

It is in (normal) situations like these that checking account is free. In such situations banks are never short of come-ons for winning new customers.

The Zimbabwean financial services sector, then, presents a hard lesson in running a bank in a harsh environment.

This is where banks make profits almost exclusively off banks charges.
Granted, all banks everywhere have these charges but not as so exorbitant, especially as these are said to be for “maintenances purposes” even though maintaining these accounts costs banks relatively little.

Exhorbitant bank charges were therefore clearly a strategy by banks operating in the country to survive after a prolonged hyper-inflationary period.

So how do the bankers themselves take the directive to scrap bank charges?
Here is a view of one banker who chose to remain anonymous (for obvious reasons):
After having been abolished three years ago, control regime has reared its ugly head in the financial sector. By their nature, controls are retrogressive and are an administrative nightmare and will more likely lead to financial disintermediation as well as some bank closures.

As a result of impending controls and a heavy handedness approach by Government, we are likely to see stagnation or decline in deposits and reversal of some of the gains witnessed in the financial system.

The deposit growth witnessed is a function of confidence brought about in part by financial sector liberalisation, he said.

Another banker’s view contends that the move by Minister Biti will have particular negative impact on the smaller banks.

The directive to scrap bank charges on deposits which are below US$800 is retrogressive and potentially, it could destabilise the banking sector. This is literally bringing back the controls that failed to yield any meaningful results during the Zim dollar era.

In particular, this may directly make the smaller banks unviable and eventually force them to close business. For instance, the majority of smaller banks serve the low income customers who earn less than US$300 per month.

In those instances, the bulk of these customers will keep account balances that definitely less than US$800. So by scrapping the bank charges on deposits that are less than US$800, it is likely completely putting these banks out of business.

The majority of smaller banks will not survive these controls and this will negate the indigenisation efforts since the bulk of smaller banks are domestic/local banks.
A third banker buttresses the “smaller bank” argument:

“Controlling the interest rates and charges incorrectly places all banks at the same level. Individual banks have different costs of funds and controlling lending rates will inevitably punish banks with higher COF.

Naturally, the smaller banks will suffer the most and may thus disadvantage low income consumers, SMEs and those companies that are not considered blue chip.
Or is this not just “cry baby syndrome”? The question is: how many “small banks” will remain when all banks finally meet RBZ’s new US$100 million minimum requirement?