By Golden Sibanda
Reserve Bank of Zimbabwe Governor Dr John Mangudya has accused banks of playing a part in driving away depositors through punitive bank charges for their service and products while they do not offer meaningful interest on savings.
The RBZ chief said banks needed to find ways to lure customers in an economy that has no domestic currency, but has “domesticated foreign currencies”. Dr Mangudya said making effort to incentivise people to bank their money rather than keep it elsewhere was important for a country that is not printing currency.
The central bank chief let rip at banks saying part of the reason some people resorted to unorthodox ways of keeping cash away from the banks was the high cost of banking. He pointed out that in most instances, instead of an individual’s bank balance growing from earning interest, the balance declines after being gnawed by charges.
“To us bankers it is a big challenge, so the question is ‘how do you incentivise customers or the banking public to bank with you because they are holding foreign exchange, which we also want as the central bank” Dr Mangudya said.
While commission and fees are part of banks non interest income and part of profit drivers, it has been noted that most banks in Zimbabwe rip off their customers through steep charges, causing potential customers to shy away from banks.
As at December 31, 2015, total banking sector deposits grew by 11,2 percent to $5,6 billion while and loans amounted to $3,9 billion, respectively. But the majority of the deposits are shared among only a few of the financial institutions.
“If you put high bank charges, they are not going to bank their dollars. For example, I get a bus from my rural area, when I get to the bank I am charged $10 minimum charge or account maintenance charge, by end of the month I only have $90 left or $85, so the money had more value in my pocket,” he said.
The central bank chief said such a scenario was not desirable, especially in an economy facing challenges regarding movement of cash where banks have had to limit withdrawals to balance the available liquidity and demand for cash.
It is against this background that the central bank, Dr Mangudya said, had created its own monetary tools outside of the conventional monetary instruments.
These include the African Export and Import Bank Trade Backed Securities, in which the bank provided $100 million to back liquidity support between banks, which enabled resumption of an interbank market that had collapsed in 2009.
The central bank also introduced bond coins to facilitate divisibility of the greenback for change and proper pricing to avoid a situation where prices in the country started from $1 dollar while all pricing was rounded to the nearest dollar.
In the absence of monetary tools to a reserve bank that lost monetary policy autonomy to influence liquidity, as it does not print a domestic currency, the central bank is working on a facility with the Afreximbank to support nostro accounts.
Nostro accounts are bank accounts held by local banks in foreign with foreign financial institutions to facilitate foreign transactions local firms may want to undertake.
Setting up a facility to support the nostros will relieve liquidity pressure on local banks that have to constantly replenish the foreign bank accounts using the liquidity they hold, resulting in liquidity pressures in the domestic economy.